Chapter 16, RE Appraisal

Question 1

Appraisal

Answer 1

an opinion of value based on supportable evidence and approved methods

Question 2

Appraisal report

Answer 2

an opinion of market value o a property given to a lender or a client with detailed market information

Question 3

an appraiser

Answer 3

and independent professional trained to provide and unbiased opinion of value in an impartial and objective manner, following an identified appraisal process

Question 4

Appraiser Independence Requirements

Answer 4

Regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals.

Question 5

FIRREA

Answer 5

Requires that any appraisal used in connection with a federally related transaction be performed by a competent individual who is licensed or certified by the state in which the appraiser practices,

Question 6

Uniform Standards of Professional Appraisal Practice (USPAP)

Answer 6

in conducting an appraisal an appraiser must follow these standards established by the Appraisal Standards Board (ASB) of the Appraisal Foundation

Question 7

Comparative Market Analysis

Answer 7

is distinctly different from an appraisal report offered by a license or certified appraiser.

An appraisal is based on a detailed analysis of market condition, the features of the subject property and comparable properties in the neighborhood, recent sales and listings, land value and current construction cost.

Question 8

Brokers’ Price Opinion

Answer 8

a less expensive alternative of evaluating property that is often used by lenders working with home equity lines, refinancing, portfolio management, loss mitigation and collections.

Question 9

Uniform Residential Appraisal Report

Answer 9

the form required by many gov’t agencies. It highlights the extensive list of certifications required to of the appraiser and is accompanied by a page of instructions.

The appraise, relying on experience and expertise in valuation theories, develops an objective report that supports the value indicated by the market.

Question 10

Value

Answer 10

monetary worth based on desirability a property must have DUST

Question 11

DUST

Answer 11

Demand-the need or desire for possession or ownership backed by financial means to satisfy that need
Utility- the property’s usefulness for its intended purpose
Scarcity- a finite supply
Transferability- the relative ease with which ownership rights are transferred form one person to another.

Question 12

Market Value

Answer 12

generally considered the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale.

The opinion of value based on an nanlysis of data

Question 13

Market Price

Answer 13

is a property’s asking, offer or sales’ price

Question 14

Cost

Answer 14

The total amount of money incurred for products or services.

Question 15

Anticipation

Answer 15

Value is created by the expectation that certain events will occur. The Income approach to value is based on the principle of anticipation.

Question 16

Change

Answer 16

the principle where no physical or economic condition remains constant;

An appraiser must be knowledgeable about both the past and the predictable future effects of natural phenomena and the behavior of the marketplace

Question 17

Competition

Answer 17

the interaction of supply and demand

Question 18

Conformity

Answer 18

means that maximum value is created when a property is in harmony with its surroundings.

Question 19

Contribution

Answer 19

the value of any part of a property is measured by its effect on the value of the whole parcel.

Question 20

Highest and Best Use

Answer 20

the most profitable single use of the property

can change with social, political and economic forces.

Question 21

law of increasing returns

Answer 21

as long as money spent on improvements produces an increase in property value this law applies.

Question 22

Law of diminishing returns

Answer 22

the point where additional improvements do not increase income or value.

Question 23

Plottage

Answer 23

is evidence when the consolidation of adjacent lots into a single larger one produces a greater total land value than the sum of the two sites valued separately.

The amount that the value of the combined properties is increased by successful assemblage

Question 24

Assemblage

Answer 24

the process of merging two separately owned lots under one owner

Question 25

Regressin

Answer 25

the worth of a letter-quality property is adversely affected by the presence of a lesser-quality property

Question 26

progression

Answer 26

the value of a modest home would be higher if it were located among larger, fancier properties

Question 27

Substitution

Answer 27

The maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitutes property.

Question 28

Supply and demand

Answer 28

the value of a product depends on the supply. when supply increases…value decreases. When supply decreases value increases.

Question 29

The Sales Comparison Approach

Answer 29

aka Market Data Approach
value is obtained by comparing the property being appraised-the subject property - with recently sold comparable properties-properties similar to the subject in location and features.

Question 30

The cost approach

Answer 30

to value also is based on the principle of substitution and consists for 5 steps:
1) Est. value of land
2) est. current cost of constructing buildings and improvements
3) eat the amount of accrued depreciation (loss in value)
4) Deduct the accrued depreciation estimated in step 3 for the construction in step 2.
Add the best land value from step 1 to the depreciation cost of building and improvements derived from step 4 to arrive at eh total property value

Question 31

Depreciation

Answer 31

is a loss in value for any reason.
Land is not considered a depreciating asset, it retains its value indefinitely.

It is the result of a negative condition that affects real property.

Question 32

Physical deteriorations

Answer 32

a curable items one in need of repair, such as painting (deferred maintenance) that would result in an increase in value equal to or exceeding its cost.

Question 33

Fictional obsolescence

Answer 33

means a loss in value from the market’s response to the item. Outmoded or unacceptable physical or design features that are no longer considered desirable by purchasers are considered curable if they can be replaced redesigned at a cost that would be offset by the anticipated increase in ultimate value.

Question 34

External Obsolescence

Answer 34

the loss in value cannot be reversed by spending money on the property. It is incurable.

Question 35

Annual Depreciation

Answer 35

Property’s cost ./. economic life in years= amount of annual depreciation

Question 36

Straight line method

Answer 36

easiest but least precise method of determining depreciation.
it is assumed to occur at an even rate over a structures economic life.

Question 37

Economic life

Answer 37

the period during which it is expected to remain useful for its original intended purpose.

Question 38

The cost approach is most useful in the appraisal of

Answer 38

newer and special purpose buildings such as schools, churches, and public buildings.

Question 39

The Income Approach

Answer 39

to value is based on the present value of the right to future income. It assumes that the income generated by a property will determine the property’s value.

used for income producing properties and is based on anticipation.

Question 40

Income Approach

Answer 40

Gross
Income
Vacancy
Expenses
Net Operating income

Question 41

NOI

Answer 41

deduct the annual operating expenses from the effective gross income to arrive a the annual NOI

management costs are always included, even if the current owner manages the property.

Question 42

capitalization rate

Answer 42

is determined by comparing the relationship net operating income with the sales prices of similar properties that have sold in the current market.

Question 43

Gross Rent Multiplier

Answer 43

If a buyer is interested in buying a one to four unit residential rental property the GRM based on monthly rental income could be used for a rough approximation of value

Question 44

Gross Rent Income

Answer 44

based on annual income be use for purchasing five or more units.