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ubc real estate licensing exam > Chapter 6.1: Appraisals Introduction > Flashcards

Chapter 6.1: Appraisals Introduction Flashcards

1
Q

Real estate is different then other assets as it is __________ and ____________

A

Unique and heterogeneous

Heterogeneous = different, not the same!

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2
Q

Real estate is different then other assets as it has a _________________ - causes limited data sources available

A

Low turnover

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3
Q

Real estate is different then other assets as it is _____ / __________ (the life of the building depends on its ______________________)

A

Durable / long lasting

Economic durability , not physical!

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4
Q

Real estate is different then other assets as it’s ________ / _________, as in stuck in one place

A

Local / Immobile

It can’t be moved!

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5
Q

The immobility of real estate leads to positive and negative _______________

A

Externalities

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6
Q

Real property markets are local by nature due to the ____________ of real property

A

Immobility

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7
Q

Heterogeneous means what? In real estate specifically…

A

Knowledge concerning one property cannot necessarily be applied to another property

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8
Q

The complexity of real estate as a product required the involvement of an ________________

A

Expert appraiser

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9
Q

Appraisers are needed as real estate is __________ - meaning what?

A

Unique

It is difficult to find real properties that are very much alike

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10
Q

Who can conduct appraisals?

A

Anyone!

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11
Q

BC has no __________________ for who can conduct an appraisal

A

Licensing requirements

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12
Q

______________ is self regulating by professional association

A

Appraisal

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13
Q

Those who can conduct appraisals require education programs, experience requirements, _______________, and ____________

A

Code of ethics

Insurance

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14
Q

The courts may conclude that even people without formal training as appraisers are responsible for their actions in the role of _______________

A

Appraisal work

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15
Q

Who needs appraisals?

Formal (specific contracts)

A
  • Mortgage finance
  • Expropriation
  • Property Tax Assessment
  • Insurance
  • Executor of an estate

But never strata councils

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16
Q

Who needs appraisals

Informal (no specific contract)

A
  • from real estate agents
  • any time properties are bought or sold

Usually part of larger package of jobs and this is just a component

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17
Q

The appraiser must determine the __________________ and the level of information required to produce credible and reliable results

A

Scope of work

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18
Q

The appraiser must determine the _________________________

A

Clients intended use

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19
Q

The appraiser must consider the ______________ of the report

A

effective date

Aka the specific date an evaluation is made

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20
Q

The appraisal must understand that _________________ may be acceptable if it falls within the requested scope of work

A

Limited detail

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21
Q

The appraiser cannot ____________________ to identify and resolve the problem

A

The client

Even if it is the client who is requesting the information

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22
Q

The registered owner is not the ______________________________

A

Ultimate source of data on the property

Yes they may have lived there for a decade, but they’re not always correct

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23
Q

2 reasons why the client has requested an appraisal

A

1) statutory reasons

2) market reason

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24
Q

1) Statutory reason

Part of Why the Client has Requested the Appraisal

A

Expropriation or taxation purposes

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25
Q

2) market reason

Part of Why the Client has Requested the Appraisal

A

Buying, selling, leasing, or developing a property

Where the appraiser may consider market data and is not forced to follow government statues

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26
Q

Appraiser are liable under two types of law, which are:

A

1) contract law

2) tort law

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27
Q

1) contract law

Appraisers are liable under 2 types of law, this being 1

A

Formal - breach of contract

When you have a contract with an appraiser

Such as banks, lenders, government

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28
Q

2) tort law

Appraisers are liable under 2 types of law, this being

A

Informal - negligence

3rd party can reasonably rely on the appraisal report

Such as buyers and sellers

Remember, tort = wrongdoing

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29
Q

One legal responsibly of an appraiser is the ______________ to both parties

A

Legal liability

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30
Q

Appraisers have no set limit of _____________________ in appraisal work - it will vary based on the market and complexity of the appraisal needing to be done

A

Allowable error

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31
Q

A margin of error of +/- _____% is allowed for finding market value of common property types with enough data

A

+/- 10% boi

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32
Q

There is no ________ required for appraisals

A

License

But just schooling and experience

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33
Q

The courts have recognized that a reasonable ____________________ exists when calculating __________ resulting from a negligent appraisal

A

Margin of error

Damages

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34
Q

An appraiser may be held liable for ____________ if a property is ____________

A

Negligence

Over-valued

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35
Q

What is ceiling price ?

A

The highest price the BUYER is willing to pay

Either equal to or below the asking price (as the buyer wants the best and lowest deal)

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36
Q

Is the ceiling price objective or subjective

A

It is 100% subjective as you decide how much you’re willing to spend

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37
Q

What is the sale price!

A

The price actually listed for / appraised at

38
Q

Is the sale price objective or subjective

A

It is 100% objective as it’s based on facts and details through appraisals

39
Q

The floor price is what?

A

The lowest price the SELLER will accept

As ideally, the seller wants the most amount of money possible, but knows they’ll need to budge / compromise to sell

40
Q

Is the floor price subjective or objective?

A

It is 100% subjective as it determines how low the seller will go before the price is too low

41
Q

The asking price is not ____________

A

The floor price

As most people will try to negotiate on the asking price, so keep it higher always in case it gets negotiated down

42
Q

Therefore, the Sale price must be 2 things

A

1) equal to or less than the ceiling price (the highway amount the buyer will pay)
2) equal to or more than the floor price (the amount the seller is willing to lose to sell)

43
Q

Just always remember then, the _______ must always be above the _______

A

Ceiling

Floor

44
Q

Subjective value =

A

Value to the owner

Whatever they see in their eyes, can be different for everyone

45
Q

Objective value =

A

Value in exchange (sales price)

Insurable, assessed, and market value

Based on fact

46
Q

Lending value =

A

A long term conservative estimate of the values of the interest in land pledged as a security

47
Q

What are the 2 elements of market value

A

1) Rights of ownership

2) The physical property (in which those rights are vested)

48
Q

And also, market value does not equal

A

Value to the owner

The market value could be $400,000 but because his daughter was born in the living room, it’s priceless

49
Q

The “_____________________” is the __________ of ownership vested in a particular piece of real estate

A

Subject of appraisal

Legal rights

50
Q

What are examples of legal interests

A

Air space
Fee simple ownership
Leasehold estate
Easements

51
Q

Factors affecting value can be __________ or __________ trends

A

Long term or short term trends

52
Q

Long term trends are what?

A
  • shifts in age composition
  • government programs effecting real estate
  • supply and cost of raw materials
  • shifts in government compositions
53
Q

Short term trends are what?

A

Consumer pessimism or optimism

Change in interest rates (mortgage, loan, bonds)

care for these more

54
Q

Additional factors that could affect value are:

3 things

A

1) physical factors
2) economic factors
3) political / government factors

55
Q

1) physical factors

A

Local, topography, soil fertility, climate, community factors (transportation, schools, churches, parks)

56
Q

2) economic factors

A 
Interest rates 
Unemployment rates 
Wage levels
Price levels 
Taxes
57
Q

3) Political / government factors

A 
Zoning bylaws 
Building codes 
Fire regulations 
Public health measures 
Rent controls
Government housing programs
58
Q

And the final 4 factors that could affect value are:

A

1) advertising
2) relationship between the parties to the sale
3) time allowed for sale
4) special purchaser

59
Q

Special purchaser specifics

A
  • will greatly extend the range of possible bids

- not about the person, it’s about the property

60
Q

What are the 4 types of appraisal Methods

A

Comparative method

Cost method

Income / investment method

Residual / hybrid method

61
Q

Appraisal Method: Comparative Method

A
  • Aka direct comparison
  • residential, empty lots
  • principle of substitution
  • required a minimum of subjective opinion from the appraiser

Examples: empty lots, residential houses

62
Q

The comparative method focusses on what types of properties?

A

Residential and empty lots!

63
Q

The ____________ method requires a minimum of subjective opinion from appraiser

A

Comparative

As you mostly compare the house to other houses nearby

64
Q

_____________________: a property’s value should be no more than the cost of purchasing a substitute property that provides similar utility

A

Principle of substitution

Aka, why spend more money on a home that has a close duplicate for less

65
Q

Cost method

A
  • no income
  • unique…nothing to compare it to
  • based on replacement cost
  • depreciation is used

Property examples: churches, temples, mills, concrete plant, museums, art gallery

66
Q

The _________ method has super unique homes, you’d want to use this method for valuing castles, the shoe house, and other homes that are 1 of a kind

A

Cost

67
Q

Examples of cost method properties

A

Churches, temples, mills, concrete plants, museums, art gallery

68
Q

The ____________ method uses depreciation

A

Cost

69
Q

Income / investment method

A
  • commercial properties
  • rental properties
  • Rate of Return
  • No depreciation is used
  • no single family

Property examples: multi-unit apartment, warehouses, leasehold interest

70
Q

The ____________ method is for commercial and rental properties

A

Income / investment

71
Q

The ______________ method doesn’t use depreciation

A

Income / investment

Only cost method uses depreciation

72
Q

The ____________ method does not deal with any single-family

A

Income / investment

73
Q

Income / investment property types

A

Multi unit apartment
Warehouses
Leasehold

74
Q

Residual / hybrid method

A
  • latent value
  • redevelopment potential
  • higher value may result through change of use

Property examples: residential house in the middle of business district

75
Q

The _________________ method has latent value, which means a higher value may result through a change of use

A

Residual / hybrid method

Meaning the property has potential, but right now it’s a dump and needs lots of work

76
Q

Residual / hybrid method property examples

A

Residential house in the middle of the business district

77
Q

“Similar” means what?

A

With respect to factors judged important by buyers and sellers

78
Q

“Recent” means what?

A

When the market conditions (property values) have remained stable

79
Q

Latent Value means what?

A

Not at its best / highest use

Good for redevelopment

80
Q

Which of the following statements regarding immobility and durability of land is false

A

When considering the durability of structure, it is not important to distinguish between economical life and physical life of the structure

Economical life is always more important than physical life

81
Q

Real property is affected by external influences from neighbouring properties. What characteristic of real estate causes this?

A

Real property is immobile

It cannot be moved, so whatever is around your land is very important

82
Q

Which of the following factors will not affect the value of land

A

The owners personal financial situation

83
Q

Of the following externalities, which one presents Both positive and negative?

A

Proximity to a transportation facility

Convenient, yes , but lots of traffic and people

84
Q

An appraiser must understand why the client has requested the appraisal.
If the purpose is for property development, it would be known as

A

Market reason

Remember, it’s either a statutory or market reason, and anything that isn’t expropriation or taxation purposes is always market reason

85
Q

An appraiser has estimated the market value of a single family dwelling to be $410,000. On the day of the appraisal, the house sold for $370,000. Given that there was sufficient evidence of recent sales, was the appraisers estimate of value reasonable?

A

Yes, because appraisers have no maximum allowable error when calculating market value of a residence

86
Q

SUPER IMPORTANT! When calculating multiple appraisals against each other, you need to take the appraised price and divide it by the selling price to calculate the %

A

Example: appraised for $235,000 sells on the appraisal date for $250,000

235,000 / 250,000 = 0.94 or 94%

But: appraised for $462,000 sells on the appraisal date for $410,200

462,000 / 410,200 = 1.126 or 112.6% - this is over the 10% allowable error

87
Q

Which of the following is key determinant of the value of property

A

Rights of ownership

88
Q

Which of the following might be the subject of a real property appraisal

A

Air space rights

Not the diamond or insurance policy

89
Q

A real estate appraiser would not value:

A

The legal interest in cattle on agricultural land

90
Q

The “subject of an appraisal” is

A

The value of the legal rights of ownership vested in a particular piece of real estate

91
Q

Which of the following factors is most likely to affect the value of residential real property in the short run

A

Consumer opinions relating to residential real estate values

ubc real estate licensing exam (24 decks)

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