Lesson 1: Value of a property Flashcards
Appraisal
An appraisal is an estimate of value.
Value
- Value has been defined as the present worth of future benefits of ownership for a typical user or investor.
- Ability of a good or service to bring other goods or services in exchange.
Two types of value:
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.
Arms length
Arms length infers that neither party has a special advantage and that each is dealing from an equal bargaining position.
Price
Price is an expression of what a buyer and seller agree the value of something is.
According to economic theory, if one of these elements is missing, a thing has no value:
Demand
Utility
Scarcity
Transferability
Substitution
The value of a property is indicated by the value of an equally desirable substitute property.
Hiqhest and Best Use
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.
Balance
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.
The downside of competition
Excess profits attract competition, and competition often destroys profits.
Anticipation
Recent sales prices of comparable properties are indications in the market place of what informed buyers anticipate the benefit of ownership will be.
Progression and Regression
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 .
Marginal Returns
Money should be invested (for improvements) whenever it returns more than a certain amount per dollar invested.
There are three approaches used in estimating value:
- market value approach, also called market data approach, market comparison approach, comparable sales approach, and sales comparison approach
- Cost approach
- Income approach
market value approach, also called market data approach, market comparison approach, comparable sales approach, and sales comparison approach is…
This approach locates recently sold properties similar to the property being evaluated, and uses these comparables as indicators of the value of that property.
Cost approach in estimating value:
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.
Income approach in estimating value:
considers the property’s earning power based on anticipated net income and on an anticipated increase or decrease in the property’s value.
Threefold definition of market value:
- the most probable estimate in terms of money that a property will bring if exposed for sale in the open market
- the price at which a willing seller would sell and a willing buyer would buy
- the price typically to be expected if a reasonable time is allowed to find a purchaser
Max age of comparable sales is:
six months
What are adjustments in comparable sales:
Values are developed by lump sum dollar adjustments reflecting market reaction to those items of significant variation between the subject and comparable properties.
What is price per square foot?
Another unit of comparison is the price per square foot of livable area, including land.
How many comparable sales should be used?
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.
How to determine individual values of additions or substations?
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.
Counterpart properties
Counterpart properties are two or more properties that match in all ways except for that one thing the appraiser is adjusting for.
Correlation approach
Taking few properties and assigning a percentage (up to 100% when added) to each one depending on how much they match the subject.
Three methods of sales comp approach for VACANT LAND are:
- Square foot method
- Front-foot method
- 4-3-2-1 rule
Front-foot method
The value of land based on street frontage
4-3-2-1 rule
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.
