Chapter 8 Flashcards
When to make adjustments?
Adjustments only need to be made when there is a significant, measurable difference between the subject property and a comparable sale.
How many lines in the sales comparison grid in the URAR appraisal form?
22 lines.
Unacceptable appraisal practices as states by fannie mae:
Development of and/or reporting an opinion of market value that is not supportable by market data or is misleading
Selection and use of inappropriate comparable sales
Failure to use comparable sales that are the most locationally and physically similar to the subject property
Use of adjustments to comparable sales that do not reflect market reaction to the differences between the subject property and the comparable sales
Not supporting adjustments in the sales comparison approach
Failure to make adjustments when they are clearly indicated
We cannot let the power of the ______ overrule our own judgment and decision making. It’s easy to plug numbers into an equation or software so that the resulting answer is 100% accurate.
math
The order in which quantitative adjustments are applied to the sale prices of comparable properties
Sequence of adjustments
an example of an acceptable sequence that is illustrated in The Appraisal of Real Estate
Property rights conveyed Financing terms/cash equivalency Conditions of sale Expenditures made immediately after purchase Market conditions Location Physical characteristics Economic characteristics Legal characteristics Non-realty components of value
The most commonly-used appraisal report form.
the URAR form, created jointly by Fannie Mae and Freddie Mac,
The adjustment factors presented in the URAR adjustment grid:
Sale or financing concessions Date of sale/time Location Property rights Physical characteristics
Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat
Fee Simple Estate`
Divided or undivided rights in real estate that represent less than the whole, i.e., a fractional interest such as a tenancy in common, easement, or life interest.
Partial Interest
the highest and most complete form of ownership.
Fee simple
Rights of use, occupancy, and control, limited to the lifetime of a designated party, sometimes referred to as the life tenant
Life Interest
The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.
Leased fee interest
The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease.
Leasehold Interest
If you are appraising a multi-unit property where at least one unit is rented, the property rights appraised consist of a
Leased fee interest
Partial interests are created when some part of the fee simple estate is taken away by:
Easements Encroachments Transfer of subsurface rights Transfer of air rights Exercise of transferable development rights (TDRs) Private restrictions Deed restrictions Conditions, Covenants, and Restrictions (CC&Rs)
The most common types of ownership that require specialized forms:
Condominiums
Cooperatives
PUDs
Timeshares
An estate in property held by one owner
Tenancy in Sevralty
Concurrent ownership includes forms of ownership such as:
Tenancy in common
Joint tenancy
Tenancy by the entirety
Any time a property has a mortgage or is encumbered by a lien, for example, the owner no longer has a
fee simple interest
You must record the type of property rights for the subject and all comparables on
the URAR
Uniform Residential Appraisal Report
A pledge of a described property interest as collateral or security for the repayment of a loan under certain terms and conditions.
Mortgage
A mortgage that is neither insured nor guaranteed by an agency of the government, although it may be privately insured.
Conventional Loan
A mortgage in which a party other than the borrower assures payment in the event of default, e.g., a VA-guaranteed mortgage or a SBA-guaranteed mortgage
Guaranteed Mortgage
A mortgage in which a party other than the borrower assures payment on default by the mortgagor in return for the payment of a premium, e.g., FHA-insured mortgages, private mortgage insurance (PMI)
Insured Mortgage
The most common example of an insured loan would be
FHA
A two-unit property can be purchased for $400,000. Typical financing terms would require a 20% down payment, with a fully-amortized mortgage at 5.5% for a term of 30 years, with monthly payments. What is the amount of the monthly payment?
We will work through this one together. Here are the keystrokes on the HP12c.
f CLEAR FIN
30 g n
5.5 g i
320000 CHS PV
PMT
1816.92
The monthly payment for a $320,000 loan at 5.5% interest would be $1,816.92.
A percentage of the loan amount that a lender charges a borrower for making a loan; may represent a payment for services rendered in issuing a loan or additional interest to the lender payable in advance; also called points. Each discount point is 1% of the original loan amount.
Discount points
A _____ is one percent of the amount of a mortgage loan
point
The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress
Market value
Do most properties sell for cash?
No
It is important to note that a mortgage does not automatically mean that an _______ for financing terms is required.
adjustment
These usually are a one-time charge that can affect the sale price.
Sale concessions
A lump-sum payment (or series of payments) to the lender that reduces the interest payments of the borrower. The cost of the buydown is usually reflected in the price paid and can be expressed as a percentage of principal
buydown
Suspicious types of sales might include:
Distressed sales (e.g., "short sales") Foreclosure sales Auctions FHA sales VA sales
When we use the sales comparison approach to develop an indication of market value, we are assuming that the comparable sales were:
Purchased by a “typically motivated” buyer; and
Paid for in cash or its equivalent, such as financed with a conventional mortgage that was obtained on the open market
Here’s how you might adjust in the case of a home that cost $200,000. The first mortgage was $150,000, and the seller paid 1.5 points
Selling price of home $200,000 - Less value of points (0.015 x $150,000) 2,250 =
Adjusted selling price $197,750
Let’s assume that a purchaser has agreed to buy a property for $125,000 and will put down $25,000. The current interest rate for mortgages is 10% and most loans are available for a 30-year period. The seller has agreed to provide a 30-year mortgage at only 8% interest. What is the cash equivalent value of the sale due to the favorable financing?
Let’s use the HP12c calculator again to calculate the mortgage payments. We enter in the known information and then solve for the payment (PMT). We will use a shortcut (g) to calculate the monthly payments. The g shortcut divides the interest rate you enter by 12 and multiplies the time period by 12.
f CLEAR FIN 30 g n 10 g i 100000 CHS PV PMT 877.57
The monthly payment for a $100,000 loan at 10% interest would be $877.57.
f CLEAR FIN 30 g n 8 g i 100000 CHS PV PMT 733.76 The monthly payment for a $100,000 loan at 8% interest would be $733.76.
