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appraisal > exam two > Flashcards

exam two Flashcards

1
Q

What is included in the building inspection?

A

The Intended Use of the Appraisal
The Intended Users of the Appraisal
Limiting Conditions
The Value Approach Requirements

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2
Q

What are some improvement characteristics?

A

Exterior and Interior Features
Appeal and Marketability
Construction Quality
Physical Condition
Effective Age

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3
Q

What is the age aspect?

A

In the past, some residential loan appraisals required the
appraiser to estimate “effective age.”
To comply with UAD system today the “actual age” must be used.

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4
Q

What is the actual age?

A

This is the chronological age of the property improvements.

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5
Q

What is the effective age?

A

Effective age is usually defined as the relative age of a structure considering its physical condition and marketability.

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6
Q

What do appraisers consider when assigning the effective age?

A

The actual age and the degree of maintenance along with additions and remodeling.
Average age considers the old and new components of the house. In reality, remodeling may not extend the life of a structure, so this is where experience matters.

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7
Q

What is the Sales Comparison approach?

A

Requires improvement details that can be compared with the features of similar properties that have sold recently.
Use comparables that sold within the last 6 months.
Explain if comparables sold more than a year ago.

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8
Q

What is the cost approach?

A

Generally requires the most descriptive detail
Must be able to calculate the cost estimate

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9
Q

What are significant issues with the cost approach?

A

Design or use type
Construction classification
Rating of quality
Size, shape and height (if needed)
Special equipment
Yard or site improvements

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10
Q

How do we define building areas?

A

Gross living area
ANSI standards: Above grade/Below grade
Measuring, diagramming and calculating square footage
* Photographs
* Front
* Rear
* Street scene

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11
Q

What is the income approach?

A

What are the property’s characteristics that have the greatest affect on the income potential and the probable expenses?
When describing income property:
* # and type of rental units
* # of vacancies
* Ratio of useable tenant area to total building area
* Quality of tenant space
* Recreation areas, parking, services, amenities
* Durability of structure/materials
* Physical condition of structure and equipment

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12
Q

What is class A?

A

Fireproof steel frames, concrete or masonry frames, floors and roof deck

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13
Q

What is class B?

A

Fire resistant concrete or masonry floors, and roofs

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14
Q

What is class C?

A

Masonry walls, wood or
exposed steel upper floor and roof structures

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15
Q

What is class D?

A

Wood or light steel frames & roofs

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16
Q

What is class S?

A

Steel buildings, steel frame with steel roof and walls

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17
Q

What is the selection of materials?

A

Climate, cost and durability
Availability, style and code requirements

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18
Q

What are some residential specifications?

A

Vary greatly with climate, availability, cost, style, etc.
Examples:
o Hawaii vs. Alaska
o California vs. New York

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19
Q

What is construction quality?

A

Quality of the basic structural integrity, materials, finishes and special features of the building.
Appraisers rate buildings according to typical specs provided by cost-estimating guides.
o Good – better than average materials and workmanship
o Average – medium quality FHA and VA standards
o Fair – Minimum acceptable quality
o Poor – Substandard construction

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20
Q

How do we evaluate physical condition?

A

Paint, floors, ceilings, walls, kitchen, appliances, cabinets, countertops, bathrooms, fixtures, major remodeling or repairs, structural problems.
Cost-to-cure estimates
Appraisers may need to estimate the cost to fix
maintenance or structural issues.
They may consult contractors for estimates.

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21
Q

What is functional utility?

A

A combination of the usefulness and attractiveness of a property.
Functional Utility measures the liveability of a house.
For example….how well the house is situated on the site, is the floor plan suitable, does the plan flow well,
etc.

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22
Q

What is the basic idea of the SC approach?

A

Value of Real Estate can be determined by analyzing the sale prices of similar properties.
Why? Because in a competitive market close substitutes will sell for similar prices.
Simple, direct and reliable
Most frequently used with residential properties
Provides data for other appraisal approaches

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23
Q

What are the key concepts of the SC approach?

A

Importance of substitution
Simplicity
Relationship of statistics
Sampling
Bracketing
Relevance of adjustments
Significance of market data

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24
Q

What are the elements of comparability?

A

The Competitive Property
- Define the subject area
Same type of transaction?
- Open market/listed in MLS
Same size, style, age, amenities, # of bedrooms/baths?
- How is it comparable?
Date of Sale/Sales History
- Close to date of evaluation?
- Any sales in the last 3 years for subject and comps

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25
Q

What information do you need for the SC?

A

Sales transaction data
* Date of sale, price, legal description, grantor/grantee, motivation of parties
Physical data
* Land and improvements
Legal data
* Zoning, taxes, assessments, restrictions
Location
* Comparability, detrimental influences
Market conditions
* State of the market

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26
Q

What are some market data sources?

A

Public records
MLS
Private/Commercial data services
Title Insurance companies
Internet
Parties to the transaction
Appraisers’ files

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27
Q

What are some data resources on the internet?

A

Websites of Government Agencies
* General data on the economy
* Regulatory information affecting real estate
Websites of Industry Service Organizations
* Industry trends and guidelines
* Construction cost estimating services
* Market data banks, appraisal support
Websites of Trade Associations
* Member information services
* General information for the public

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28
Q

What are some appraisal statistical concepts?

A

Central Tendency: The numeric value that is suggested as typical, with regard to size, price other variable studied.
Measures of Central Tendency:
* Mean: Average numeric value or price
* Median: Middle value
* Mode: Most frequently occurring value
* Range: Difference between high and low value
* Standard Deviation:: Description of how values
differ from the mean

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29
Q

What are some statistical concepts?

A

Linear and Multiple Regression
Can calculate relationships between property features and property prices
Can suggest value of the subject property

30
Q

What is the technique for the direct comparison method?

A

Locate similar properties and arrange according to value
Which are better/worse/questionable

31
Q

What are the limitations for the direct comparison method?

A

This technique relies heavily on the appraiser’s intuition about the market

32
Q

What is the price v. the terms of the sale?

A

Seller Financing
* Better or worse than standard?
Assumed Financing
* Better terms?
Seller-Paid Points
* Does buyer generally pay points?
* If it’s a buyer’s market will the seller pay points?

33
Q

What are the rules for making adjustments?

A

Always adjust the comparables. Never adjust the subject property
- CBS: Comparable Better Subtract
- CIA: Comparable Inferior Add
Use market derived adjustments
Adjust in the proper order
* Terms/condition
* Time
* Location
* Physical Features

34
Q

What is matched-pair analysis?

A

Matched-pair analysis is simple…when using this method, appraisers:
* Identify comps that differ in only one feature or characteristic
* Measure the difference in sale price
* Convert the difference into an adjustment amount

35
Q

What are the types of sales adjustments?

A

Lump Sum Dollar Amounts: $
Percentage of Price: %
Units of Comparison: X / Y

36
Q

What are units of comparison sales adjustments?

A

Total Property
* Price of similar units
* May involve ranking the sales
Physical Units
* Price per square foot, price per acre
* Price per room
* Price per dwelling unit
Economic Units
* Price per build able dwelling unit
* Price per developable building area
* Gross income multipliers

37
Q

How do you adjust for market conditions using a price index?

A

Sources of Price indexes
Freddie Mac
* Office of Federal Housing Enterprise Oversight
(OFHEO)
* Associations of Realtors
Application: Derive monthly rates of change from most relevant series, and apply to comparables.

38
Q

What are the market condition adjustments?

A

When a property has sold more than once in a short period of time, you can use that property’s sale prices to determine the total percentage change in the market

39
Q

How do you use the mean rate for market conditions?

A

Using the mean rate or average monthly rate increase, you can estimate the adjustment for market conditions with each sale.

40
Q

What are some automated valuation models?

A

Computer Software Program
* Analyzes data in specified area or neighborhood
* Relates results of database search to subject property information imputed into the model
When Applied to an Individual Property it is not an appraisal.
Will an AVM become the basis for an appraisal?

41
Q

What is the purpose of land value estimates?

A

Sale and Purchase
Development
Financing
Land Leasing
Government Actions
Agriculture
Court Actions

42
Q

What are some allocations for tax purposes?

A

Ad Valorem taxes
o Land and improvement values are often separated
Income taxes
o Building value is allocated for depreciation purposes

43
Q

What is the site value in the 3 approaches?

A

Cost Approach
o Land + Building = Total Value
Income Approach
o Certain techniques require allocated site value
Sales Comparison Approach
o Estimate of land value is often needed for comparison techniques

44
Q

What are the methods of appraising land?

A

Market/Direct Comparison
Allocation or Abstraction
Land Development
Land Residual

45
Q

What is the highest and best use?

A

“The reasonable and profitable use that will support the highest land value as of the date of value.”
A Highest and Best Use Opinion is Required by USPAP when the assignment is Market Value

46
Q

What is the highest and best use criteria?

A

Physically possible
Legally permissable
Economically feasible
Most productive

47
Q

What are the steps in the market method?

A

Locate vacant land sales
Compare each sale
Adjust prices for differences
Arrive at value

48
Q

What is site value allocation/abstraction?

A

When to Use
- When vacant land sales are not available
- To appraise shared land interests
Allocation
- In some jurisdictions, the allocation between land
and improvements by the County Tax Assessor may give the appraiser some guidance. In other jurisdictions, it is meaningless.

49
Q

What is the land development method?

A

Used to Estimate Value of Land Ready to be Subdivided.
Used When no Comparable Sales Available, or Detailed Analysis of Project is Desired.
Procedure for Residential
Subdivision:
- Estimate number of lots to be developed
- Estimate total gross sales dollars
- Subtract all direct and indirect costs of development
- Conclude the value of the raw land

50
Q

What is the land residual method?

A

Version of the Income Approach
Based on the Principle of Surplus Productivity
Used when no Comparable Sales are Available
Suitable for Vacant or Improved income properties
- Estimate net operating income for property
- Estimate income attributable to improvements
- Capitalize residual income to the land

51
Q

What are some market comparison techniques?

A

Comparability Criteria
- Competitive property
- Market transaction
- Recent in time of sale Sales/Listings of Subject
- Analyze any agreement of sale/option/listings close to the date of value
- Investigate prior sales (36 mo)
Data Needed
- Size, shape, other physical features
- Legal data (zoning, taxes, restrictions, etc.)
Sales History of the Comparables
- Important in speculative markets
- Assess the relevance of any transfer
Data Sources
- Public records, MLS,
commercial databases
Verification
- Open market transaction
- Price and terms
- Assumed loans

52
Q

What is the purpose of building construction?

A

Explain basic construction features of wood
frame residential houses so you can better judge and evaluate them as appraisers

53
Q

Why are wood frame house preferred?

A

Less expensive than other types
Can be built rapidly
Easy to insulate against hot and cold
Greater flexibility of design is possible, enabling
architects and builders to produce a variety of
architectural styles.

54
Q

What are some traditional house styles?

A

Mediterranean
Cape Cod
Victorian
Farm house
Georgian
Contemporary
Ranch

55
Q

What is orientation?

A

A house with correct orientation that is intelligently landscaped, with windows and glass doors in the right places and
adequate roof overhang can save thousands of dollars in heating/cooling bills over a year.
Houses should ideally face South.
- South side of a house receives 5 times as much solar heat in the Winter as in the Summer. The North side receives no solar
heat at all during the Winter months.

56
Q

What is foundation?

A

The substructure on which the superstructure rests.
- Foundation includes: footings, foundation
walls, columns, pilasters, slab and all other
parts that provide support for the house and
transmit the load of the superstructure to the
underlying earth.
- Foundations are constructed of cut stone,
stone and brick, concrete block or poured concrete.
- Poured concrete is the most commonly used
because of its strength and resistance to moisture.

57
Q

What are the two types of foundation?

A

Concrete Slab
- Composed of a concrete slab supported around
the perimeter and in
the center by concrete beams sunk into the earth.
- Monolithic v. Floating
Pier and Beam
- Foundation rests on a series of isolated columns called piers that extend above ground level. The space between is the crawl space.

58
Q

What is exterior structural walls and framing?

A

Frame
- The skeleton members of a building to which the interior and exterior walls are attached
Walls of a frame are composed of Studs
- Building codes require that studs spacing not exceed 24 inches on center. For a two story house, not to exceed 16 inches on center.
- Studs rest on plates that are secured to and rest on the foundation wall.

59
Q

What are the three types of wood frame construction?

A

1) Platform
- Most common types of frame construction for one and two story residential structures.
- One floor is built at a time and each floor serves as a platform for the next story.
2) Balloon
- The studs extend continuously to the ceiling of the second floor.
- Gives a smooth, unbroken wall surface on each floor level, alleviating the unevenness that sometimes results from settling when the platform method is used.
3) Post and Beam
- Contemporary-style building utilize post and beam frame construction.
- Ceiling planks are supported on beams that rest on posts placed at intervals inside the house.
- Because posts provide some ceiling support, rooms can be built with larger spans of space between the supporting walls.
- Often see the posts exposed and stained or painted to serve as part of the décor of the house.

60
Q

What are the roof framing aspects?

A

Residential roofs are made of several styles:
- Gable
- Hip
- Gable with dormers
- Saltbox
- Shed
- Flat
- Gambrel
- Mansard

61
Q

Whats up on the roof?

A

Roofs are supported by rafters, which are typically wood beams that form the roof structure and angle.
Shingles: Waterproof materials used to cover the roof. Metal, asphalt or wood shingles, clay tile, slate, aluminum, steel, roofing tar.
Soffit: The part of the roof that extends past the wall and sometimes includes airflow vents into the attic.

62
Q

What are exterior walls?

A

Sheathing: insulated drywall or plywood attached to the framing of the house.
Sheathing is nailed directly to the wall studs to form the base for the siding.
Siding: the final exterior layer of the house.
Siding may be asphalt, shingles, wood, aluminum, stone or brick.

63
Q

What is insulation?

A

Insulation is placed in the exterior walls and upper floor ceilings to provide adequate protection from heat/cold.
- R-Value: The effectiveness of insulation depends on its resistance to heat flow.
- The larger the R-Value the more resistance to heat flow and the better the insulation.

64
Q

What are windows?

A

Variety of types and styles:
- Wood, Aluminum, Vinyl
- Single-hung, Double-hung, Horizontal Sliding, Casement, Fixed, Jalousie, Storm, Skylight
Proper installation, weather-stripping and adequate caulking are crucial for windows to be energy efficient.

65
Q

What is heating and AC?

A
  • Ductwork: network of pipes that distribute cooled or heated air to different parts of the house.
  • Zone system: ductwork in some cases can be split into zones which allow heating or air to be diverted to specific parts of a building
    instead of all parts at
    once. This allows different rooms to be set at different temperatures.
66
Q

What is plumbing?

A
  • Water supply system
  • Drainage system
  • Vent piping system
  • Waste collecting system
  • House connection pipe system
    Sewer pipes are made of cast iron, concrete or plastic.
    Water pipes are made of copper, plastic or galvanized iron
67
Q

What are water heaters?

A
  • A water heater is basically an insulated
    metal tank that heats water.
  • Size needed depends on the size of the household and demands.
    Residential uses range from 17 gallons to 80 gallons. Average is 40 gallon.
    The newest forms of water heaters are on-demand, which means the water isn’t heated until it is required.
68
Q

What is an electrical system?

A

A good residential electrical system has three important characteristics:
1) Meets all National Electrical Code (NEC)
safety requirements.
- Each major appliance should have its own circuit and lighting circuits should be isolated from electrical equipment that causes fluctuations in voltage
2) Meets the home’s existing needs and has the capacity to accommodate room additions and new appliances.
3) Is convenient: there are enough switches, lights, and outlets available

69
Q

What are the power requirements?

A

Electrical service from the power company is brought into the home through the transformer and the meter into a circuit breaker box or a fuse panel.
- Circuit Breaker Box: the distribution panel for the many electrical circuits in the house.
- In case of a power overload, the heat generated by the additional flow of electrical power will cause the circuit breaker to open at the breaker box thus reducing the possibility of electrical fires.

70
Q

What is a fuse and an amperage?

A

Fuse: another device that interrupts the flow of electricity in case of a power surge. Unlike a breaker, a fuse must be replaced when it is tripped.
- Residential wiring circuits are rated by the voltage they are designed to carry.
- 120 – 240 volt
Amperage: the strength of a current expressed in amperes is shown in the circuit breaker panel. Capacity required of at least 100 amps. Larger service (150 to 200 amps) may be needed for a home with over 3000 square feet.

71
Q

What are some electrical terms?

A
  • Conduit: pipes installed in walls or underneath floor to allow easy installation of electrical cables.
  • GFCI: Ground Fault Circuit Interrupters are required, per modern building codes, on outlets near running water; kitchens, baths, and outdoors.

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