Lesson 1 Flashcards
When it comes to CRA scope, which options does the CRA have?
A) Accept because within SCOPE
B) Have the report co-signed by an AACI
C) Decline the assignment
All of them
Presumed facts about the property that are either uncertain or are simulated but untrue are known as:
Extraordinary Assumptions
Timothy has been asked with Appraising a Single Family Dwelling. Timothy opts out not to apply the cost approach while appraising the dwelling. Timothy’s choice not to apply the cost approach is an example of:
Extraordinary limited condition.
Which is it for the following
SCOPE OF PRACTICE or SCOPE OF WORK
It refers to the depth of work to be completed for an assignment, ranging from very simple, straightforward tasks to highly complex data analyses and reconciliation.
SCOPE OF WORK
Which is the only defined limitation on the SCOPE OF PRACTICE for AACI-designated based on your education and experience.
Competency
T of F
Hypothetical conditions must always be accompanied by an extraordinary assumption.
True
Extraordinary Limited Conditions are unacceptable in any assignment where they
A) Compromise the appraisers impartiality, objectivity, and independence
B) Limit the _____ __ _____ to such a degree that the results are not credible given the purpose of the assignment and the intended use of the results.
C) Limit the ______ of the reports that results in the report to be misleading
B) Scope of Work
C) contents
T or F Reserve Fund studies are also known as deprecation reports.
True
One of the requirements for a reserve fund study is a
financial analysis
True
An _________ is a statement or condition that is presumed or assumed to be true and from which a conclusion can be drawn.
CUSPAP defines an assumption as “that which is taken to be true”. An extraordinary assumption is an assumption which if found to be false could alter the resulting opinion or conclusion.
Assumption
What best describe’s the appraiser’s client?
The person who engages the appraiser to complete the assignment.
According to CUSPAP the burden of proof to support the scope of work decision level and the level of information included in the report lies on:
The Appraiser
A reliance letter gives permission to parties other than the intended user to use the appraiser’s report for their own ______.
purpose
In the SCOPE OF REVIEW assignment the reviewer develops his/her own opinion of value the reviewer must develop a scope of work that covers both the review and the ______
_____, which means complying with two Standards 1) The Review Standard and the ______
_______
appraisal requirements
Appraisal Standard
Which of the following determines the extend fo the CRA’s SCOPE OF PRACTICE LIMITATIONS.
Highest or Best use and Actual and Assumed
You have arrived at work Monday morning in your appraisal office and you receive a phone call from a potential client looking to hire your professional services. In a most unusual day, you then receive two more phone calls from this same client about further appraisal work on this same property. In other words, a single client, a single property, but with three differing intended uses. The three scenarios are as follows:
Scenario 1: the client owns a single-family dwelling and is attempting to negotiate a mortgage; needs an appraisal for lending purposes.
• Scenario 2: the client has been offered a promotion in another city and the employer will help with relocation expenses, paying the difference between the value of the current residence and an equivalent residence in the new city.
• Scenario 3: the client calls a third time, notifying you that their spouse will not be joining them in this relocation; the client now needs your assistance in preparations for the forthcoming matrimonial litigation.
These three scenarios were presented to 30 participants in the CPD 124 Scope of Work webinar. The participants were asked how long they would spend on each scenario, specifically the tasks of neighbourhood analysis, supply/demand analysis, inspection of comparable sales, and financing verification for the comparable sales.
How would the letter of engagement would differ for each scenario….
Each of the three scenarios builds on depth of due diligence needed to present credible professional work.
Applying the Income approach can be done by two different processes
Gross Income Multiplier
Overall Cap Rate
New Rental apartment buildings are rare
Because of why?
Marginal Economics
The term “Bulk condominium” means what?
All the units are held by 1 investor with goal of achieving monthly rents.
What are PRIMARY SOURCES when determining market value on a property?
- *Paired Sales
- *Resale Analysis
- *Multiple regression/Graphing Analysis
- *Interviews with Brokers, Appraisers, and Developers, etc.
What are 2NDARY SOURCES when determining market value on a property?
- *HPI
- *MLS statistics
- *CMHC Statistics
- *Newspaper Reports
Scenario: You need to appraise a condo and found a current sale and sale from 3 months ago.
There has been an indication that the Market conditions has changed since 3 months ago.
The current sale is $275,000 and the sale from 3 months ago was $250,000
How would you calculate the time adjustment (Market change) in months?
(Current Sale/Sale from 3 months ago) - 1 x 100 = ___$/3 =
____% per month
If you are appraising a Duplex, Triplex, or 4Plex property, which one of the approaches to value you would rely on what is the first thing and 2nd step that you would need to do?
1st step: You would need to find out the HBU for the multi-family property by doing market research.
2nd step: Then you would need to decide if you should do INCOME APPROACH 1st and DIRECT COMPARISON approach as a SUPPORTING 2ndary Data.
Why is the DIRECT COMPARISON APPROACH used for valuing Multi-family dwellings.
**It measures MARKET CONDITIONS by Analyzing Supply and Demand trends
Which approach tends to provide the best indication of market value because reflective of MARKET PARTICIPANTS.
DIRECT COMPARISON APPROACH
PRO’s of DIRECT COMPARISON APPROACH when valuing Multi-Family Dwellings
- *Need Comparable Sales to provide an indication of Market Value.
- *Principle of SUBSTITUTION
- *Reflection of MARKET SUBSTITUTION
- *Simple to Understand
CON’s of DIRECT COMPARISON APPROACH when valuing Multi-Family Dwellings
Requires sufficient and relevant comparable sales
What are the CON’s of the INCOME APPROACH when valuing Multi-Family Dwellings
**Reliant on Market Support to help determine
DIRECT CAP RATE or GIM
PRO’s of INCOME APPROACH ]when valuing Multi-Family Dwellings
- *Considers Income Producing Potential
* *Principle of Anticipation
DIRECT COMPARISON Approach is which one of these?
a) Principle of Substitution
b) Principle of Anticipation
c) Principle of Substitution and Contribution
a) Principle of Substitution
COST APPROACH is which one of these?
a) Principle of Substitution
b) Principle of Anticipation
c) Principle of Substitution and Contribution
c)Principle of Substitution and Contribution
INCOME APPROACH is which one of these? a) Principle of Substitution b) Principle of Anticipation c)Principle of Substitution and Contribution
b) Principle of Anticipation
Is COST APPROACH normally used on their own?
No
Consumer behaviour affect the Supply and Demand of Real Estate which is influenced by Governmental \_\_\_\_\_\_\_\_\_\_\_\_ Economic Social
G
E
E
S
Environmental
PRO’s of COST APPROACH when valuing Multi-Family Dwellings
- *Reflects Market Thinking
* *Considers the PRINCIPLE OF SUBSTITUTION AND CONTRIBUTION
CON’S of Cost APPROACH when valuing Multi-Family Dwellings
- *Not sufficient to use on its own
- *Calculating Depreciation is difficult
- *Estimation of External and Functional Obsolescence
What is EXTERNAL OBSOLESCENCE?
LOSS IN VALUE caused by OUTSIDE FACTORS.
ex: Garbage Dump near your home
What are examples of FUNCTIONAL OBSOLESCENCE which is INCURABLE OBSOLESCENCE?
Cure (Can be fixed or repaired)
**Mismatched number of bedrooms to bathrooms.
**Home that is 900 square feet and has 3 bedrooms.
(bedrooms would be extremely small)
**Five Bedroom house with only one bathroom.
**Physical deterioration due to deferred maintenance.
What are the 3 ways for Valuing Land?
1) Direct Comparison
2) Market Extraction
3) Allocation Method
Market Extraction and Land _______ are basically the same thing.
Valuation
You need to do a Quantitative Analysis on an older property. You need to make adjustments for time (Market) and location (Corner or Interior). What are the elements that you need to put in the Table.
-Extracted Land Value (Price)
-Date of Sale
-Number of Months
** Time (Market Conditions Adjustment)
**Adjusted Sales price
Locations (Corner Adjustment)
**Final Adjusted Sales Price
LAND VALUE CALCULATION
Effective Age is the actual age of the improvements with adjustments for ___ and _____.
Age Condition
LAND VALUE CALCULATION
Economic Life (yrs) is based on Market sales evidence for similar properties and discussions with \_\_\_\_\_\_\_\_ and \_\_\_\_\_\_. Example: An economic life for a typical single family home in the subject are is 65 years old.
inspectors and developers
T or F
The purpose of adjustments in the direct comparison approach is to narrow the range of market indicators for the Subject Property
True
What are the 3 ways you can obtain ALLOCATION RATIO?
1) Assessment Data
2) Observed Patterns over time
3) Consultation with Developers
In determining ALLOCATION RATIO’s, the Appraiser can conduct a sales analysis of both _____ _____ sales and ______ properties in similar sized lots.
vacant land
improved
The data to find in determining Allocation Ratio can be found in MLS, ________, or Assessment Information.
Land Registry
What are the 3 Land Valuation Techniques:
1) Direct Comparison Approach
2) Extraction
3) ________
Allocation
Factors Affecting Land Values?
Governmental
Economic
Environment
Social
What are the things that you are looking for when inspecting a land site?
- Location
- Shape
- Watercourse
- Street Improvements
- Access
- Utilities in Area
- Topography
- Any Contamination Issues
Residual Land Value= SP (sales price) - ?
Building Value
When vacant land sales are insufficient for the DIRECT COMPARISON APPROACH then the appraiser may resort to which other approach?
EXTRACTION METHOD
Is there any type of appraisal where the principle of HBU would not be considered?
The principle of highest and best use should be considered in ALL appraisal assignments. Whether holding property, looking to purchase property, looking to sell property, or analyzing property for development, the principle of highest and best use is a crucial element in the decision making process.
