Lesson 8 - Valuation Process and Pricing Properties

Question 1

Appraisal

Answer 1

-An estimate of a property’s value by an appraiser who is usually presumed to be an expert in his work.

Question 2

Cost Approach

Answer 2

• A method of estimating the value of real property by calculating a current construction cost, subtracting accrued depreciation and adding a land value obtained from the market.
• Used for specialized properties that don’t have many comparables.

Question 3

Income Approach

Answer 3

• An appraisal technique whereby the value of an income producing property is estimating by capitalizing its net operating income using an appropriate capitalization rate. Value = Income / Rate.
• Commonly used in commercial properties

Question 4

Sales Comparison Approach

Answer 4

-Valuation method which compares a subject property’s characteristics with those of comparable properties which have recently sold in similar transactions.

Question 5

Comparative Market Analysis (CMA)

Answer 5

A CMA is a property evaluation that determines property value by comparing other properties currently on the market, properties that have recently sold, and expired listings.

Question 6

Residential Market Analysis

Answer 6

Residential market analysis is a study of the property being listed.
The analysis views the property in light of the conditions in the marketplace.

Question 7

What will a residential market analysis analyze? 9 things

Answer 7

1) Recently sold properties
2) Current competing properties
3) Recently expired properties
4) Buyer appeal
5) Market position
6) Positives and negatives of the property being marketed
7) Area market conditions
8) Recommended terms
9) Market value range

Question 8

Market Value

Answer 8

• Market value is the most probable price that a property should bring if exposed for sale in the open market for a reasonable period of time, with both the buyer and seller aware of current market conditions, neither being under duress.
• Also known as “Fair Market Value”

Question 9

Market Price

Answer 9

• Market price refers to the actual selling price of a property.
• Remember: market value is the probable price, while market price is the actual selling price.

Question 10

Direct Costs

Answer 10

Also known as hard costs, they include the cost of labor and materials.

Question 11

Indirect Costs

Answer 11

-Costs that create and support the project. These include architectural and engineering fees, attorney fees, and financing costs, among others.

Question 12

Obsolescence

Answer 12

-One of the causes of depreciation. It is the loss of desirability and usefulness caused by new inventions, changes in design, and improved processes for production, or from the influence of external factors. Obsolescence may be either economic or functional.