Chapter 5 The Appraisal Process Flashcards
Compare general and specific data.
General data refers to social, economic, governmental, and environmental trends that affect property value; specific data refers to information on the property being appraised.
Briefly explain what the market comparison approach to value is.
The market comparison approach to value is the technique of valuing a property using information on sales of comparable properties. It is especially useful when there have been recent transactions for similar buildings.
Briefly explain what the cost approach to value is.
The cost approach to value is the process of determining the construction and land costs required to build a property with similar utility. It relates basically to the principle of substitution.
Define income capitalization and explain the IRV formulas.
Income capitalization is the process of converting net operating income into a value estimate. Income, Rate, and Value formulas solve for one of the elements if the other two factors are knowns, such as R=I/V or V=I/R.
What is the principle of substitution?
The appraisal principle states that when several similar properties are available the one with the lowest price will attract the greatest demand and widest distribution.
Which approach to value is most appropriate for residential property?
The Market Comparison Approach
What must be done if a comparable sale property has more advantageous financing than the property under appraisement has or will have?
A cash equivalency analysis reduces each comparable sale to its cash equivalent value.
What is a land-to-building ratio?
(land area)/(building area)
What are some examples of topography adjustments?
- razing an old building foundation
- unusual soil conditions
What are the considerations in using the gross rent multiplier?
Gross rental income, location, property type
- used particularly for apartment and hotel properties, and a factor that varies from property to property.
- Factors such as property features and condition are not given any consideration
What are the three basic components used to calculate value with the cost approach?
- the value of the vacant land
- estimated construction costs
- minus actual depreciation of the physical structure
Outdated lighting fixtures are an example of what?
Functional obsolescence.
Other examples are old elevator cars, HVAC equipment.
Two categories are curable and incurable
What is an example of economic obsolescence?
Also known as external obsolescence.
- market changes, such as population shifts
- plant closings
- highway construction
What is the rate formula for capitalization?
(Capitalization Rate R)=(Net Operating Income I)/(Value)
What is the indicated capitalization rate for property valued at $2,000,000 and an NOI of $190,000.
9.5%
