Chapter 3- Appraisal

Question 1

This takes recently sold properties that are comparable to subject properties in order to arrive at realistic market value

Answer 1

Competitive Market Analysis (CMA)

Question 2

A licensed individual who processes necessary qualifications to estimate value for a fee. Supportable estimate of the value of parcel of real estate made by qualified appraiser

Answer 2

Appraisal

Question 3

This fee is usually based on time and expenses, never the amount of $ of appraised value

Answer 3

Appraisal fee

Question 4

The capital outlay required to create improved real estate. Includes financing, building costs, labor, overhead, and profit

Answer 4

Cost “Production Cost”

Question 5

Actual amount paid by a buyer to a seller for a particular parcel of RE

Answer 5

Market Price

Question 6

Most probable price a parcel of RE should bring in an open and competitive market. Estimate fair market value

Answer 6

Market Value

Question 7

What are the 4 essential elements of value?

Answer 7

D.U.S.T

1. Demand
2. Utility
3. Scarcity
4. Transferability

Question 8

An appraiser concept referring to the legal and reasonable use, at time of appraisal, is most likely to produce the greatest net return

Answer 8

Highest and best use

Question 9

A valuation principle that says the value of a property should be equal to that of a similar, substitute property. For example, an investor wouldn’t pay one million dollars for a property when another one is available with a similar use, design, and income for five hundred thousand dollars. The lowest valuation should be the upper limit of value for both homes being compared.

Answer 9

Substitution

Question 10

Buildings that are similar in design, construction, and age to other buildings in the area have a higher value than they would have in a neighborhod of dissimilar buildings

Answer 10

Conformity

Question 11

Valuation theory that recognizes that after a certain point of money spent on improvement will not add to overall value of a property

Answer 11

Increasing / Diminishing Valye

Question 12

Theory holds that merging separate owned pieces of property into one large lot will increase the value of seperate pieces

Answer 12

Plottage

Question 13

Process of merging lots under one ownership

Answer 13

Assemblage

Question 14

Value determined by expectations of future benefits

Answer 14

Anticipation

Question 15

An improvement to real property is only worth whatever it adds to the market value of a property as a whole. Value determined by what people will pay, not cost.

Answer 15

Contribution

Question 16

Principal that addresses how dissimilar properties affect one anothers value

Answer 16

Regression and Progression

Question 17

What are the 3 distinct stages a single property and neighborhood typically go through?

Answer 17

Growth, Equilibrium, and decline

Question 18

This holds that increased or excessive profits tend to attract competitors. As similar competitors move into an area, profits will be seriously affected unless increases #’s attract more shoppers

Answer 18

Competition

Question 19

An increase in the value of a property caused by increased population, development, or demand (external factor) for which the owner is not responsible.

Answer 19

Unearned Increment

Question 20

What are the 3 approaches to value?

Answer 20

1. Market
2. Cost
3. Income

Question 21

What are the 4 factors subject to adjust valuation process:

Answer 21

1. Market Conditions- adjustments must be made if significant changes since sale of comparable
2. Location
3. Physical Characteristics- lot size, # of sq feet
4. Financing- differences in term/condition of sale

Question 22

What is a judgement based on appraisers knowledge and experience?

Answer 22

Reconcilation

Question 23

What are the 4 steps for cost approach to appraisal?

Answer 23

1. Estimating value of land

2.

Question 24

What are the 4 steps for cost approach to appraisal?

Answer 24

1. Estimating value of land
2. Estimating value of land
3. Estimating accrued depreciation
4. Computing total property value

Question 25

A method of appraising real property based on the land value, plus reproduction costs of improvements, minus depreciation

Answer 25

Cost Approach to Valuation

Question 26

Formula for Cost Approach to Valuation

Answer 26

Land Value + Replacement Costs - Depreciation = Property Value

Question 27

Which approach of valuation is heavily relied upon when appraising non-income producing, special purpose projects?

Answer 27

Cost Approach to Valuation

Question 28

This requires appraiser compute reproduction costs (costs to rebuild exact duplicate). Used in appraising older structures because it allows for replacement of outdated features and takes advantage of current construction materials

Answer 28

Estimating Construction Costs

Question 29

Loss of value for any reason (age, use, deterioration)

Answer 29

Depreciation

Question 30

What are the 3 methods of estimating reproduction costs?

Answer 30

1. Sq foot method (L X W X H / SQ FOOT)
2. Unit in place method
3. Quantity survey method

Question 31

What is it called when you find the total loss of value during life of building

Answer 31

Estimating Accured Depreciation

Question 32

What are 3 categories according to cause of estimating accrued depreciation?

Answer 32

1. Physical Deterioration
2. Functional Obsolescence
3. External (economic) obsolescence

Question 33

Which characteristics of depreciation are curable?

Answer 33

Physical Deterioration and Functional Obsolescence

Question 34

This is settling foundation, crack walls, leaking roof, or any loss of physical soundness (wear and tear). Judged to be curable if repairs result in increased value that would be equal to or exceed cost of repairs

Answer 34

Physical Deterioration

Question 35

Loss of value a building suffers because of outdated design or materials (buildings no longer meet the needs/demands of users), and is curable if the deficiency is economical to correct and incurable if not economical to correct

Answer 35

Functional Obsolescence

Question 36

Caused by changes in the surrounding environment that makes subject property less attractive to user, thus reducing market value (zoning changes, deteroring neighborhood that affects the value of all houses in the hood)

Answer 36

External Obsolescence

Question 37

Based on the theory that the market value of a piece of property is equal to the present worth of whatever future income it can produce over remaining economic life

Answer 37

Income Approach to Valuation

Question 38

What are the steps for determining value using income approach?

Answer 38

1. Estimate Annual Potential Gross Income
2. Estimate effective gross income
3. Estimate Net Operating Income
4. Select Capitalization Rate
5. Apply Capitalization Rate to Determine Value

Question 39

Price of a property divided by its rent - quick method of obtaining estimate of property value

Answer 39

Gross Rent Multiplier

Question 40

“Steal from the Rich” adjustment factor

Answer 40

If a feature in a comp. is more desirable than subject = subtract value of feature from sales price of comp.

Question 41

“Give to Poor” adjustment factor

Answer 41

If feature in comp is less desirable = add value of feature to sales price of comp

Question 42

Useful life of property, usually shorter than physical life of structure

Answer 42

Economic Life

Question 43

Chronological age

Answer 43

Actual Age

Question 44

Difference between economic life and remaining economic life of structure

Answer 44

Effective Age