Lesson 1: Value of a property

Question 1

Appraisal

Answer 1

An appraisal is an estimate of value.

Question 2

Value

Answer 2

1. Value has been defined as the present worth of future benefits of ownership for a typical user or investor.
2. Ability of a good or service to bring other goods or services in exchange.

Question 3

Two types of value:

Answer 3

Value can be utility value, value in use, or market value, the most probable price a property would bring if offered for sale in a competitive, open market.

Question 4

Arms length

Answer 4

Arms length infers that neither party has a special advantage and that each is dealing from an equal bargaining position.

Question 5

Price

Answer 5

Price is an expression of what a buyer and seller agree the value of something is.

Question 6

According to economic theory, if one of these elements is missing, a thing has no value:

Answer 6

Demand
Utility
Scarcity
Transferability

Question 7

Substitution

Answer 7

The value of a property is indicated by the value of an equally desirable substitute property.

Question 8

Hiqhest and Best Use

Answer 8

Hiqhest and Best Use will support the highest value of the property as of the date of the appraisal.
The highest and best use must be: 
physically possible, 
legally permissible, 
and financially feasible.

Question 9

Balance

Answer 9

In any community, to satisfy the needs of its inhabitants, there must be a balance in the number and location of the various types of land usages.

Question 10

The downside of competition

Answer 10

Excess profits attract competition, and competition often destroys profits.

Question 11

Anticipation

Answer 11

Recent sales prices of comparable properties are indications in the market place of what informed buyers anticipate the benefit of ownership will be.

Question 12

Progression and Regression

Answer 12

The principle of progression says that the value of a lesser valued object (a house, for example) tends to increased when associated with or placed in an area with higher valued objects .

Question 13

Marginal Returns

Answer 13

Money should be invested (for improvements) whenever it returns more than a certain amount per dollar invested.

Question 14

There are three approaches used in estimating value:

Answer 14

1. market value approach, also called market data approach, market comparison approach, comparable sales approach, and sales comparison approach
2. Cost approach
3. Income approach

Question 15

market value approach, also called market data approach, market comparison approach, comparable sales approach, and sales comparison approach is…

Answer 15

This approach locates recently sold properties similar to the property being evaluated, and uses these comparables as indicators of the value of that property.

Question 16

Cost approach in estimating value:

Answer 16

It adds together the cost of the components necessary to replace or reproduce a building, subtracts depreciation, and adds in the cost of land to determine value.

Question 17

Income approach in estimating value:

Answer 17

considers the property’s earning power based on anticipated net income and on an anticipated increase or decrease in the property’s value.

Question 18

Threefold definition of market value:

Answer 18

1. the most probable estimate in terms of money that a property will bring if exposed for sale in the open market
2. the price at which a willing seller would sell and a willing buyer would buy
3. the price typically to be expected if a reasonable time is allowed to find a purchaser

Question 19

Max age of comparable sales is:

Answer 19

six months

Question 20

What are adjustments in comparable sales:

Answer 20

Values are developed by lump sum dollar adjustments reflecting market reaction to those items of significant variation between the subject and comparable properties.

Question 21

What is price per square foot?

Answer 21

Another unit of comparison is the price per square foot of livable area, including land.

Question 22

How many comparable sales should be used?

Answer 22

There should be at least three to six good comparable sales. This could mean selecting out of 10 to 15 sales the most comparable three to six sales.

Question 23

How to determine individual values of additions or substations?

Answer 23

Counterpart properties are two or more properties that match in all ways except for that one thing the appraiser is adjusting for.
If two houses are the same in all respects except that one has a fireplace and the other doesn’t, the difference in price, in theory, is the value of the fireplace.

Question 24

Counterpart properties

Answer 24

Counterpart properties are two or more properties that match in all ways except for that one thing the appraiser is adjusting for.

Question 25

Correlation approach

Answer 25

Taking few properties and assigning a percentage (up to 100% when added) to each one depending on how much they match the subject.

Question 26

Three methods of sales comp approach for VACANT LAND are:

Answer 26

1. Square foot method
2. Front-foot method
3. 4-3-2-1 rule

Question 27

Front-foot method

Answer 27

The value of land based on street frontage

Question 28

4-3-2-1 rule

Answer 28

The 4-3-2-1 rul.e is also used for valuing vacant lots. This rule adjusts value according to depth. It says that land in the front of a lot is worth more than land in the back of one.