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Florida RE exam > Chapter 16 > Flashcards

Chapter 16 Flashcards

1
Q

What is an appraisal?

A

An independent, impartial, and objective estimate or real estate property value

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2
Q

On what basis is an appraiser paid for performing an appraisal?

A

Time, difficulty, and expenses for the appraisal

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3
Q

What is USPAP (United States of Professional Appraisal Practice)?

A

Government standards under which all appraisals in federally related transactions must be performed

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4
Q

What is the difference between cost and price in an appraisal?

A

Cost is how much money it took to create
Price is how much money someone would be willing to pay for it

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5
Q

What are the elements that interact that affect the value of real estate?

A

DUST
Demand
Utility
Scarcity
Transferability

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6
Q

What is Market Value?

A

The most likely price at which a property will sell

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7
Q

Which factors are inherent in the definition of Market Value?

A

Property on the market for a reasonable amount of time
Buyer and seller are informed an acting in their own interest and not under duress
Seller can convey a title
Payment is made in US Dollars

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8
Q

What is Assessed Value?

A

Value assigned by the property appraiser for ad valorem tax purporses

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9
Q

What is Insurable Value?

A

Value used by insurance companies as the basis for insurance coverage

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10
Q

What is Investment Value?

A

Value of a property to an investor

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11
Q

What is Liquidation value?

A

Value that is the amount that remains after all assets of a business have been sold and all liabilities have been paid

Used to estimate the value of a failing business, or the minimum value for a profitable business

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12
Q

What is Salvage Value?

A

Value that can be received from the sale of the parts from a demolished structure

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13
Q

What is Plottage Value?

A

Value that results from assemblage (combining) two or more adjacent parcels of land under one owner. This value is typically greater than the value of the individual parcels

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14
Q

What is Value-in-use?

A

Value that is the income (net present value) generated by the property in a particular use

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15
Q

What is Principle of Substitution?

A

Principle that states that no one will pay more for a property than the amount necessary to acquire a substitute version of the property

This is the basis for sales comparison approach

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16
Q

What is Principle of Change?

A

Principle that states that circumstances can alter the market, which in turn may affect the value of real estate. Appraisals are made as of a specific date to account for these changes.

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17
Q

What is Principle of Competition?

A

Principle that recognizes that sellers compete with other sellers, and buyers compete with other buyers

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18
Q

What is Principle of Conformity?

A

Principle which states that the value of a property is sustained when it is similar in size, architectural style, and other features with properties in the same area

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19
Q

What is Principle of Contribution?

A

Principle that states that the value of a component of a property is the value it adds to the total value of the property

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20
Q

What is the principle of highest and best use?

A

Principle that states that the best use for the property is the use that would most likely produce the greatest net return to the land

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21
Q

What is the principle of progression?

A

Principle that states that a lower priced property in an area that consists of more expensive properties will increase in value. This leads to price conformity in the area

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22
Q

What is the principle of regression?

A

Principle that states that a higher priced property in an area that consists of less expensive properties will decrease in value. This leads to price conformity in the area

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23
Q

What are two key aspects an appraiser must know?

A

Purpose - residential, investment, etc
Intended use - what the appraisal will be used for

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24
Q

What are the steps performed in an appraisal?

A

Define the problem
Determine the scope of work
Data collection & Analysis
Apply 3 approaches to value
Reconcile for final opinion of value
prepare report

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25
Q

What information is required by an appraiser for the first step of the appraisal process? Defining the problem

A

Who is the user
What is the intended use of the appraisal
Effective date
Property characteristics
Conditions, laws, regulations affecting the work

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26
Q

What types of analysis is done by the appraiser to collect and analyze data?

A

Market analysis (supply, demand, marketability)
Highest and best use (as vacant and as improved)

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27
Q

What is the purpose of the highest and best use analysis for a vacant lot?

A

Establishes the value of the land based on how it should be used rather than how it is currently used

28
Q

What is the purpose of the highest and best use analysis for a property with improvements?

A

To determine whether the present use is the best use, or if alternative use should be considered in order to maximize the value

29
Q

What are the 3 approaches to value appraisers use in the appraisal process?

A

Sales comparison
Cost depreciation
Income

30
Q

What is the reconciliation process in the appraiser’s appraisal process?

A

Weighing the 3 results from the value approaches. Greater weight is given to the approach best reflecting the value of the subject home

31
Q

Which types of reports can appraisers issue?

A

Form Report - standardized, used most for residential appraisals, required by primary and secondary lenders

Narrative report - explains why of each conclusion

Oral report - given in court testimony

32
Q

What is the Sales comparison appraisal method?

A

Appraisal method that is based on an analysis of recent sales of similar properties in the same market

33
Q

What are the steps in a sales comparison appraisal?

A

Locate comparable properties
Adjust the comparable sales prices
Reconcile the adjusted sales prices

34
Q

What is Subject Property in an appraisal?

A

The property that the appraiser is trying to obtain a value for

35
Q

What are comparable properties (or comps)?

A

Properties used in the sales comparison approach to estimate the value of the subject property

36
Q

What are the characteristics of a suitable comparable property used in a sales comparison approach to determine the value of a subject property?

A

Properties that have sold recently that are similar in:
design
size
location
age
condition

37
Q

What adjustments are made in the comparable sales approach of an appraisal?

A

Financing terms
Conditions of sale
Market conditions
Location
Physical characteristics

38
Q

What is the cost-depreciation (or cost) approach of doing an appraisal?

A

Appraisal method that is used to determine the current cost of reproducing or replacing a building, minus an estimate of depreciation

39
Q

How is the value of a property estimated using the cost depreciation approach for an appraisal?

A

Replacement Cost - estimate cost to construct a comparable building using modern materials, design, and features

Reproduction cost - Estimate cost to construct an identical building by using the same materials, design, and layout

40
Q

When is the cost-depreciation approach used for an appraisal?

A

For newer properties, properties proposed for renovation, insurance purposes, properties infrequently sold in the real estate market like a school or church

41
Q

What are the steps in the cost-depreciation approach of appraisal?

A

Estimate the cost of replacement
Estimate accrued depreciation
Subtract the depreciated cost
Estimate the value of the land
Add depreciated building cost to land value

42
Q

What are the methods used for estimating the cost to replace or reproduce the building with a cost depreciation approach?

A

Quantity Survey method - most accurate - uses a detailed inventory and precise cost for each item needed to be constructed

Unit-in-place method - simple and fast - estimate the cost of each component of the property using nationally published cost manuals that provide cost per sqft

Unit-of-comparison method - uses a benchmark building - estimate the cost per sqft of the entire building, using the known cost of a recently constructed building

43
Q

What are the methods used for estimating the accrued depreciation of a building with a cost depreciation approach?

A

Physical deterioration - due to normal wear and tear from use, aging, or negligence (broken windows, faded or peeling paint, worn carpeting)

Functional obsolescence - due to a deficiency or over-improvement of the property (inadequate lighting, one bathroom in a 4br house, a pool, no central AC, inefficient floor plan)

External obsolescence - due to factors beyond the boundaries of the property (location near an airport, busy roadway, a landfill, etc)

44
Q

What is the economic age-life method in an appraisal?

A

Simplest method for estimating the percentage of accrued depreciation over the total economic life of a building

45
Q

What is total economic life of a building?

A

Estimated number of years that a building will contribute value above the value of the land

46
Q

What is the effective age of a building?

A

Age a property appears to be due to extensive updates or excessive wear and tare

47
Q

How do you calculate the rate of accrued depreciation of a building using the economic age-life approach?

A

Effective age /Total economic life = rate of depreciation

48
Q

How do you estimate the dollar amount of accrued depreciation over the life of a building using the age-life approach?

A

Rate of depreciation * reproduction cost of the building = Total accrued depreciation

49
Q

What is the income approach used for an appraisal?

A

Appraisal method that is used to estimate the value that a property’s net earning power will support

Used for income producing properties, or valuation of a business

50
Q

What are the techniques that can be applied for the income approach of doing an appraisal?

A

Direct capitalization - Future income is converted into present value

Gross multiplier - value is estimated based on a rent multiplier derived from comparable properties

51
Q

What is potential gross income?

A

Term that refers to the total annual income for the coming year

52
Q

What is effective gross income and how is it calculated?

A

Actual amount the owner of a property can expect to receive from the property for one year into the future

Potential gross income - vacancy and Collection loss + other income from the property = effective gross income

53
Q

What is net operating income and how is it calculated?

A

How much the owner can expect to have after accounting for expenses used to run the property

Effective gross income - operating expenses = net operating income

54
Q

Which types of expenses are used in the calculation of operating expenses?

A

Fixed expenses - property tax, insurance
Variable expenses - Utilities, trash removal
Reserves for replacements - funds set aside for replacement of items such as appliances, carpets

55
Q

Which types of expenses are NOT included in the operating expenses calculations?

A

Mortgage payments, capital improvements, income tax, and personal expenses unrelated to the property

56
Q

What is Capitalization rate?

A

Rate of return on the investment that is derived from comparable properties in the same market

57
Q

How is the value of a property calculated using the capitalization rate and the net operating income?

A

Net operating income/capitalization rate = value

Income/value = rate
More income you make, higher return rate

58
Q

What are the type of gross multipliers used to determine the value of a subject rental property from comparable properties rented at the time of sale?

A

Gross Rent Multiplier = comparable sales price/gross monthly rent

Gross income multiplier = comparable sales price / annual gross rental income

59
Q

Which part of FS 475 regulates real estate appraisers?

A

Part II

60
Q

What is the Florida Real estate appraisal board (FREAB)?

A

Board created by FS 475 Part II to administer and enforce the laws governing real estate appraisers

Consists of 9 members appointed by the governor, confirmed by the senate

61
Q

What are the levels of appraiser licensing?

A

Registered Trainee
State-certified residential appraiser
State-certified general appraiser

62
Q

What types of appraisals can a real estate licensee perform without needing additional licensing?

A

Valuation in a non-federally related transaction
Comparative Market Analysis
Broker Price Opinion

63
Q

Which term can a real estate licensee never use to refer to their valuation services in connection with listing or sale of a property?

A

Appraisal

64
Q

What is Comparative Market Analysis (CMA)?

A

Type of valuation service based on sales comparison approach that is frequently used by real estate licensees when assisting sellers in establishing a listing price

65
Q

Where is the data for a CMA obtained?

A

the multiple listing service (MLS), property appraiser’s office, and the Clerk of Courts

66
Q

What is a Broker’s price opinion?

A

Type of valuation service most often requested by lenders for properties that have been foreclosed, or being considered for a short sale transaction

Florida RE exam (18 decks)

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