Chapter 21 Real Estate Appraisal

Question 1

Latent value

Answer 1

The current use us not at it’s best/ highest

Question 2

“Subject of an appraisal”

Answer 2

Legal rights of ownership vested in a certain piece of real estate

Question 3

Principle of negligent misinterpretation

Answer 3

Ex: an appraiser appraised a property for the bank then the loan officer showed it to the buyers. The house later on was found out to have pests. THERE’s NO PRIVITT OF CONTRACT between the appraiser and the buyer therefore they can’t have remedy against the appraiser, but can use the PRINCIPLE OF NEGLIGENT MISI TERPRETATION!

Question 4

Market value

Answer 4

The price the property might reasonably be expected to realize when sold in an arms length transaction.

Question 5

The amount of depreciation

Answer 5

Is the most difficult to assess when appraising older buildings using the cost approach

Question 6

Supply and demand of real property

Answer 6

🔵the price of real property increases, the supple increases
🔵the price increases, demand increases
🔵absolute supply of real land is fixed and CAN be altered
🔵real property is fixed in location

Question 7

Objective value- value that can be verified by a third party

Answer 7

Insurable value
Lending value
Market value
Actual value

Question 8

Value in exchange

Answer 8

Sale price

Question 9

Determinants for the value of property

Answer 9

Rights of ownership

Physical property

Question 10

Short tern national general economic factors

Answer 10

Interest rates on treasury bills

Consumer expectations

Question 11

Significant characteristics of improved land

Answer 11

Immobility

Durability of it’s improvements

Question 12

Flow of information concerning real property is limited because:

Answer 12

🔵Turnover is slow
🔵Every parcel is heterogenous
🔵Real property is durable and longlasting and not quick to respond to market pressures
🔵markets are local with real estate fixed in location

Question 13

Comparative approach

Answer 13

Is based on the principle of substitution

Question 14

Factors that will affect the value of residential real property in the short-run?

Answer 14

Change in mortgage interest rates

Question 15

Factors affecting value of residential real property in the long run?

Answer 15

Shifts in age composition of the population
Shift in the balance of trade between countries
The supply and cost of raw materials and energy

Question 16

Market analysis

Answer 16

🔵indicate current status of the subject property in relation to trends in property values
🔵to confirm the comparable properties have been selevted from the same marker as the subject property and are subject to the same market forces
🔵to provide the client with an appreciation of the socio-economic determinants of supply and demand

Question 17

Value to the owner

Answer 17

Maybe used in investment analysis

Question 18

Appraisal also know as

Answer 18

Property valuation

Is an estimate- opinion of value, there is a degree of subjectivity as long as supported by logical rationale, underpinnes by objective analysis of market information

Question 19

Who needs appraisal

Answer 19

Investor seeking the value of property
Mortgage lenders
Registrant listing a property for sale

Question 20

Factors influencing marker value

Answer 20

Economic
Political
Physical
Social

Question 21

Market value is the product of two property elements

Answer 21

🔵rights of ownership

🔵physical property

Question 22

APPRAISAL

Answer 22

The value of legal interests in real estate is estimated

Question 23

Legal interests in a property

Legal rights of ownership-subject of appraisal

Answer 23

Fee simple ownership
Leasehold estate
Condominium ownership
Air space rights
Easements (hyrdro right-of-ways)

Question 24

Appraiser can use disclaimers

Answer 24

To reduce their scope of liability

Question 25

Appraisal process

Answer 25

``` 🔵defining the appraisal problem 🔵scope of work determination 🔵data collection 🔵data analysis 🔵select the appropriate approach 🔵reconciliation of value indications and final opinion of value 🔵communicate findings ```

Question 26

The site analysis should consider these factors:

Answer 26

``` Physical Location Legal Economic Environment ```

Question 27

Supply of real property(land and improvements) can be altered by changing the use of a parcel of real property

Answer 27

🔵the supply of real property cannon be increased or decreased rapidly 🔵the supple of real property is fixed in location

Question 28

Any given region may be classified into Real estate markets accdg to:

Answer 28

Location Land use Price

Question 29

Real estate market is an imperfect market

Answer 29

🔵small number of buyers and sellers relative to the amount of properties 🔵uniqueness of each parcel 🔵the lack of info for buyers and sellers 🔵the fact that nor all buyers and sellers strive for the most profitable bargain

Question 30

Direct comparison approach/ comparative/ market

Answer 30

Principle of substitution

Question 31

Cost approach

Answer 31

The simplest and most precise yet least exact approach to use because: It’s hard to accuartely measure depreciation in older building The cost of the building may not directly relate to how the market perceives its value

Question 32

How to communicate final analysis of data?

Answer 32

Orally or written Narrative Short form narrative Form report- usually used by financial institutions

Question 33

Comparative market analysis (CMA)

Answer 33

Narrative style report prepared by a licensee for the seller to establish an estimated market value and in turn recommend a price for the listing