CHP 14 - The appraisal Process

Question 1

Appraisal Steps

Answer 1

1. Identify
2. Assimilate
3. Assess (Identify most profitable use)
4. Estimate (land value)
5. Apply 3 approaches to estimating value
6. Reconcile the values
7. Compile report

Question 2

3 Approaches to value

Answer 2

1. Sales Comparison
2. Cost
   3.

Question 3

Sales Comparison approach AKA

Answer 3

Market Data

Question 4

Coast Approach

Answer 4

Mostly used for new construction and special purpose buildings

Question 5

Types of Cost Approaches

Answer 5

Reproduction Cost (duplicate)
Replacement cost (functional equivalent)

Question 6

When is replacement cost used

Answer 6

older structions

Question 7

Why is reproduction cost preferable

Answer 7

calculates depreciation on structure

Question 8

Cost Approach Steps

Answer 8

1. Estimate land value
2. Estimate reproduction/replacement
3. Estimate accrued depreciation
4. Subtract accrued depreciation from reproduction.replacement
5. Add land value to depreciated reproduction/replacement

Question 9

Methods for estimating reproduction/replacement costs

Answer 9

1. Unit comparison method /Square foot method
2. Unit in place
3. Quantity Survey Method
4. Cost indexing method

Question 10

Disadvantages to cost approach

Answer 10

Depreciation is difficult to measure & cost to create improvements isn’t same as market value

Question 11

1st step in cost approach

Answer 11

Estimate land value

Question 12

Income Capitalization Approach Steps

Answer 12

1. Estimate potential gross income
2. Estimate effective gross
3. Estimate net operating
4. Select a capitalization rate
5. Apply the cap rate

Question 13

Potential Gross Income

Answer 13

Scheduled rent + Other income

Question 14

Effective Gross Income

Answer 14

potential gross income - vacancy & Credit losses

Question 15

Net operating income

Answer 15

Effective gross income - total operating expenses

Question 16

Gross rent multiplier =

Answer 16

Market value/Annual Gross income

Question 17

Estimated value =

Answer 17

GRM X Subject monthly rent

Question 18

Last step of income captitalization approach

Answer 18

apply the cap rate

Question 19

USPAP

Answer 19

Uniform Standards of Professional Appraisal Practice

Question 20

What legislation initiated the appraisal regs

Answer 20

Financial LInstitutions Reform, Recovery and Enforcement Act

Question 21

Net Operating Income (NOI) is equal to

Answer 21

potential gross income minus vacancy and credit loss minus expenses

Question 22

Weakness of the sales comparison approach

Answer 22

There may be no recent sale price data

Question 23

Central concept of cost approach

Answer 23

Add estimated land value and cost of improvements & Subtract accrued depreciation

Question 24

Difference between appraisal and morgage value

Answer 24

mortgage value - value a lneder imputes to the property as collateral

Question 25

Net income 20K with a cap rate of 5% =

Answer 25

value = $400,000

Question 26

After data is assimilated appraiser must

Answer 26

assess highest and best use

Question 27

Weakness of cost approach

Answer 27

marke value isn’t always the same as property cost

Question 28

Act requiring federally-realted appraisals to be conducted by certified appraiser

Answer 28

FIRREA (Financial institutions reform, recovery and enforcement act)

Question 29

4th step in the appraisal process (after determining highest and best use)

Answer 29

estimate land value of subject