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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 unique 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 durable / __________ (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 local / _________, 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
2) market reason Part of Why the Client has Requested the Appraisal
Buying, selling, leasing, or developing a property Where the appraiser may consider market data and is not forced to follow government statues
26
Appraiser are liable under two types of law, which are:
1) contract law | 2) tort law
27
1) contract law Appraisers are liable under 2 types of law, this being 1
Formal - breach of contract When you have a contract with an appraiser Such as banks, lenders, government
28
2) tort law Appraisers are liable under 2 types of law, this being
Informal - negligence 3rd party can reasonably rely on the appraisal report Such as buyers and sellers Remember, tort = wrongdoing
29
One legal responsibly of an appraiser is the ______________ to both parties
Legal liability
30
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
Allowable error
31
A margin of error of +/- _____% is allowed for finding market value of common property types with enough data
+/- 10% boi
32
There is no ________ required for appraisals
License But just schooling and experience
33
The courts have recognized that a reasonable ____________________ exists when calculating __________ resulting from a negligent appraisal
Margin of error Damages
34
An appraiser may be held liable for ____________ if a property is ____________
Negligence Over-valued
35
What is ceiling price ?
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)
36
Is the ceiling price objective or subjective
It is 100% subjective as you decide how much you’re willing to spend
37
What is the sale price!
The price actually listed for / appraised at
38
Is the sale price objective or subjective
It is 100% objective as it’s based on facts and details through appraisals
39
The floor price is what?
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
Is the floor price subjective or objective?
It is 100% subjective as it determines how low the seller will go before the price is too low
41
The asking price is not ____________
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
Therefore, the Sale price must be 2 things
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
Just always remember then, the _______ must always be above the _______
Ceiling Floor
44
Subjective value =
Value to the owner Whatever they see in their eyes, can be different for everyone
45
Objective value =
Value in exchange (sales price) Insurable, assessed, and market value Based on fact
46
Lending value =
A long term conservative estimate of the values of the interest in land pledged as a security
47
What are the 2 elements of market value
1) Rights of ownership | 2) The physical property (in which those rights are vested)
48
And also, market value does not equal
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
The “_____________________” is the __________ of ownership vested in a particular piece of real estate
Subject of appraisal Legal rights
50
What are examples of legal interests
Air space Fee simple ownership Leasehold estate Easements
51
Factors affecting value can be __________ or __________ trends
Long term or short term trends
52
Long term trends are what?
* shifts in age composition * government programs effecting real estate * supply and cost of raw materials * shifts in government compositions
53
Short term trends are what?
Consumer pessimism or optimism Change in interest rates (mortgage, loan, bonds) *care for these more*
54
Additional factors that could affect value are: | 3 things
1) physical factors 2) economic factors 3) political / government factors
55
1) physical factors
Local, topography, soil fertility, climate, community factors (transportation, schools, churches, parks)
56
2) economic factors
``` Interest rates Unemployment rates Wage levels Price levels Taxes ```
57
3) Political / government factors
``` Zoning bylaws Building codes Fire regulations Public health measures Rent controls Government housing programs ```
58
And the final 4 factors that could affect value are:
1) advertising 2) relationship between the parties to the sale 3) time allowed for sale 4) special purchaser
59
Special purchaser specifics
- will greatly extend the range of possible bids | - not about the person, it’s about the property
60
What are the 4 types of appraisal Methods
Comparative method Cost method Income / investment method Residual / hybrid method
61
Appraisal Method: Comparative Method
- Aka direct comparison - residential, empty lots - principle of substitution - required a minimum of subjective opinion from the appraiser Examples: empty lots, residential houses
62
The comparative method focusses on what types of properties?
Residential and empty lots!
63
The ____________ method requires a minimum of subjective opinion from appraiser
Comparative As you mostly compare the house to other houses nearby
64
_____________________: a property’s value should be no more than the cost of purchasing a substitute property that provides similar utility
Principle of substitution Aka, why spend more money on a home that has a close duplicate for less
65
Cost method
- 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
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
Cost
67
Examples of cost method properties
Churches, temples, mills, concrete plants, museums, art gallery
68
The ____________ method uses depreciation
Cost
69
Income / investment method
- commercial properties - rental properties - Rate of Return - No depreciation is used - no single family Property examples: multi-unit apartment, warehouses, leasehold interest
70
The ____________ method is for commercial and rental properties
Income / investment
71
The ______________ method doesn’t use depreciation
Income / investment Only cost method uses depreciation
72
The ____________ method does not deal with any single-family
Income / investment
73
Income / investment property types
Multi unit apartment Warehouses Leasehold
74
Residual / hybrid method
- latent value - redevelopment potential - higher value may result through change of use Property examples: residential house in the middle of business district
75
The _________________ method has latent value, which means a higher value may result through a change of use
Residual / hybrid method Meaning the property has potential, but right now it’s a dump and needs lots of work
76
Residual / hybrid method property examples
Residential house in the middle of the business district
77
“Similar” means what?
With respect to factors judged important by buyers and sellers
78
“Recent” means what?
When the market conditions (property values) have remained stable
79
Latent Value means what?
Not at its best / highest use | Good for redevelopment
80
Which of the following statements regarding immobility and durability of land is false
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
Real property is affected by external influences from neighbouring properties. What characteristic of real estate causes this?
Real property is immobile It cannot be moved, so whatever is around your land is very important
82
Which of the following factors will not affect the value of land
The owners personal financial situation
83
Of the following externalities, which one presents Both positive and negative?
Proximity to a transportation facility Convenient, yes , but lots of traffic and people
84
An appraiser must understand why the client has requested the appraisal. If the purpose is for property development, it would be known as
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
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?
Yes, because appraisers have no maximum allowable error when calculating market value of a residence
86
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 %
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
Which of the following is key determinant of the value of property
Rights of ownership
88
Which of the following might be the subject of a real property appraisal
Air space rights Not the diamond or insurance policy
89
A real estate appraiser would not value:
The legal interest in cattle on agricultural land
90
The “subject of an appraisal” is
The value of the legal rights of ownership vested in a particular piece of real estate
91
Which of the following factors is most likely to affect the value of residential real property in the short run
Consumer opinions relating to residential real estate values

UBC Real Estate Licensing Exam (24 decks)

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