Lesson 1- Learning Objectives Flashcards
Explain the “concepts of land and the various factors that affect land value
physical- geographic and environmental
values can fluctuate due to weather and climatic conditions e.g. excessive rains or long hot dry spells can affect both urban and rural land uses. new road patterns can open up lands that previously had little value and affect the value of existing land.
economic
statistics Canada studies show that sluggish income growth combined with a low interest rate environment has led to dangerously high household-debt levels. consider how this affects real estate in your area and others – or what may happen to the market if interest rates change.
government and legal government activities (federal, provincial, municipal, and first nations) can affect real estate values, so you need to be aware of how their decisions impact values in your area, either positively or negatively. governments at all levels have varied powers to determine real estate use. For example, legislation can be enacted to protect certain lands from development or to limit development on them. students should be aware of these pieces of legislation and their effect on property values. the legal title fora property is a key aspect in its valuation. searching the title of the property will indicate if there are any easements, access restrictions, use restrictions, or other charges registered against the title and which could affect the property's value.
social
an appraiser needs to understand how and why people desire things and how they apply a value to them. what are their motivations? in addition, you need to be aware of external forces that affect property values, consider how trends in immigration/emigration and population shifts may change the make-up of neighbourhoods and municipalities. evolving social trends may also affect the development of land – such as the common differences in opinion between governments and local neighbourhood organizations on how available lands should be developed.
Distinguish between the concepts of real estate, real property, and personal property
real estate refers to a physical entity that is immobile and tangible, such as land or improvements. examples of natural improvements found on a property include trees and minerals. improvements made by humans include buildings and landscaping things we can see and touch.
real property refers to the rights attached to real estate that are intangible and which we cannot see or touch. however, they are present and they can affect value, particularly if they affect the use of the land or real estate. for example, a lease or an easement is real property, even thought they are not tangible – they are commodities that can be bought and sole. another example of this is the transfer of air rights.
personal property is tangible, but not affixed to the real estate.
Identify the difference between fixtures and chattels
Appraisers do not value chattels, as these can be removed easily. Fixtures are included because they are attached and form part of the real estate.
Fixture is part of the real estate.
Chattel is personal property, not affixed to the real estate.
To decide whether an item is a fixture or a chattel, the courts have adopted a general two-part test. The first aspect of the test has to do with the degree of affixation. Articles attached to the land merely by their own weight will, in the first instance, be considered chattels unless circumstances show that they were intended to be part of the land. On the other hand, articles that are affixed, even slightly, will be considered to be fixtures unless circumstances show that they were intended to be chattels.
The second aspect of the text concerns the purpose of affixation. Where an object is affixed for the better use or enjoyment of the object as an object, it will considered a chattel. Where the object is affixed in order to enhance the land to which it is affixed, the object will probably be considered to be a fixture.
Discuss the reasons why real property appraisal is necessary and the basis for appraisal being recognized as a profession
appraisal is an estimated opinion of value. a professional appraisal is that it is a formal opinion of value: prepared as a result of a retainer; intended for reliance by identified parties; and for which the appraiser assumes responsibility.
Appraiser has obligations to five stakeholder groups:
- clients
- third parties (such as lending institutions, government agencies that underwrite lending institution losses, etc)
- society in general (promote the wise and efficient use of a scarce and limited resource)
- the appraisal profession
- peers (represents all appraisers)
The basis for appraisal being recognized as a profession:
Therefore, to attain professional status, appraisers must ensure that the services they provide are of the highest level of quality and competence, and that they adhere to professional standards and a code of ethics, which ensures public faith in their integrity and competence.
A professional is defined by three traits:
- Integrity
- Competence
- Quality Work
Distinguish between the purpose and intended use of an appraisal
Every appraisal must state the purpose of the appraisal and the type of value to be found by the appraiser. This will dictate the type of research that the appraiser must undertake to arrive at this value.
The use of the appraisal is determined by the client’s needs and the appraiser must be aware of these before undertaking the appraisal, as this will determine the type and amount of work and the fee to be charged.
Explain the difference between market value, market price, and cost of real estate.
Market value vs Market Price
“one sale does not make a market” because some sales may not represent typical transactions,such as non-arm’s length sales, chattels included in the sale price, or non-typical financing. This is why it is often necessary to investigate the motivation of the parties involved and to also verify the accuracy of the sale price with one of the parties.
Market Value vs Cost
Keep in mind that cost does not equal value, since it is the market that determines what an item is worth. This value could be more or less than the cost.
Define market value and explain how it relates to other definitions of value that an appraiser might be asked to find
Market value- the most probable price which a property should bring in a competitive and open market under all conditions requisite to fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
market value can be defined as the expected sale price or forecast-ed sale price. Market value refers to a sale that may or will occur, while sale price refers to a sale that has already occurred.
- value is related to a certain, specified point in time
- value is the price which might reasonably and probably be expected (value is expectation of someone who has sufficient knowledge of the real estate market to form an opinion)
- willing seller and willing buyer
- adequate time and exposure to the market
- price represents normal consideration (property is exchanged for cash or a combination of cash and financing (mortgage), with the terms and conditions of the financing typical of the market as of the date of sale. For example, the mortgage interest rate is that which is readily available and typical for the subject property type).
Discuss the concepts of immobility, durability, indivisibility of services, and divisibility of ownership with respect to land value
significant characteristics of improved land are its immobility, the durability of its improvements, the indivisibility of the services it provides and the divisibility of ownership it allows.
immobility
land, as space on the surface of the earth, is immobile. immobility of real estate as a commodity prevents moving it to a better market. The forces of demand and supply in real estate markets are determined by the conditions that exist in each local region. location is very important.
durability of improved land
a second important characteristic of real estate is the indestructibility of space and the durability of structures.
indivisibility of the services
elements of value cannot be separated into those derived from the land, the buildings, or the landscaping, since users regard the site as a single unit. However, in some cases, land and improvements are considered separately. (North American real estate taxes usually assess land and improvements (buildings) separately.
divisibility of ownership
ownership of a single parcel of real estate may be divided both physically and legally. for example, ownership of real property can be physically divided by creating separate interests in land. legal ownership of property may also be divided.
Explain the impact and potential benefits of professional standards, such as the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP), in valuation work.
The CUSPAP (Canadian Uniform Standards of Professional Appraisal Practice) establishes a foundation of ethical conduct, leaving specific decisions on practical matters to the professional’s judgment, acting as a “Reasonable Appraiser”. CUSPAP includes an Ethics Standard that must be followed by all members. It also includes six specific standards for members focusing on appraisal, consulting, and a variety of other valuation-related specialties.
Discuss how AIC’s First Principles of Value and Professional Competencies help to guide and shape the development of Canadian valuation professionals.
AIC has adapted a Canadian-specific version called the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP, or commonly called “the Standards”)
AIC (Appraisal Institute of Canada) has defined these valuation fundamentals in the First Principles of Value.
First Principles of Value:
Problem Identification
-purpose, intended use, and definition of value
Property Content
-physical, legal, financial, location understanding
Legal considerations
- property rights, land use regulations
- legislation and the courts
Highest and Best Use
Economic Analysis
