Intro To Real Estate Appraisals

Question 1

Purpose of Appraisals

Answer 1

1. Vendor planning to sell
2. Purchaser planning to buy
3. Developer assessing estimates for redevelopment
4. Mortgagee assessing loan security
5. Insurable value for insurance
6. Real property taxation
7. Legal circumstances (Estate, gift, transfer tax, divorce)
8. Expropriation

Question 2

Subject of Appraisal

Answer 2

1. Fee simple ownership
2. Lease hold estate
3. Condo ownership
4. Air space
5. Easements

Question 3

Value of Owners-Subjective Value

Answer 3

Floor Price: Owners minimum price
Ceiling Price: Buyers maximum price
Value in Exchange: agreed upon price, or sale price

Question 4

Variations in Sale Prices

Answer 4

Time: Length of time allowed for sale to take place
Advertising: Adequately advertised properties, may have a higher sale price
Sales Between Related Parties: Sale price will likely differ if there is a relationship between parties (Father, daughter)
- When no relationship present. It is known as bargaining and arms length
Financing: Terms of financing may affect sale price

Question 5

Special Purchasers

Answer 5

• If property has a unique advantage to a buyer, buyer will likely pay more for that property.
• Presence of special purchase may increase potential number of bids

Question 6

Comparative Method

Answer 6

• Use when good amount of sales in area
• There should be a recent sale

Note: “Recent” = Time period where prices remained stable

Question 7

Income Method

Answer 7

• Use for income producing properties

Question 8

Cost Method

Answer 8

• Assumes cost is equal to value. not necessarily correct
  Replacement Cost: Current cost of construction for a modern building of that type
  Reproduction cost: How much will it cost to construct exact replica of same building

Question 9

Residual Method

Answer 9

• Only use if property has latent value
• Property is not at highest and best use

Question 10

Types of Depreciation

Answer 10

Physical: Wear and tear on building
- Old paint is example of curable depreciation
-Weak foundation is incurable deprec. because it is not easily fixable

Functional: Using outdated design and materials
Wood burning fireplace is curable depreciation
Poor design is incurable depreciation