Module 1 & 2

Question 1

3 approaches to an opinion of value

Answer 1

income capitalization, cost estimate of constructing, and sales comparison

Question 2

6 steps in valuation process

Answer 2

1) identify problem 2) scope of work 3) data collection/property description 4)data analysis 5) land value opinion 6)application of 3 approaches 7)reconciliation 8) report of defined value

Question 3

Step 1: Id Problem

Answer 3

1) identify client & intended users 2) identify use 3) identify purpose (type of definition of value) 4) identify effective date (present, past, or future) 5) identify relevant characteristics 6) identify assignment conditions (hypothetical condition, extraordinary assumptions)

Question 4

Step 3: Data analysis

Answer 4

market analysis: demand studies, supply studies, & marketability studies
highest & best use analysis: land as vacant, ideal, improvement property as improved

Question 5

Intended Use

Answer 5

what will the clients do with the appraisers opinion stated in the appraisal report? court action? home equity loan? estimated damage from pollution? settle estate or value trust or biz separation?

Question 6

Purpose

Answer 6

Definition of value
ex. market value (common); use value (particular use); insurable value (insurance); and the investment value (investor, justify in paying the price higher than non adjoining owners); and assessed value (tax assessing authority; rep % of market value)

Question 7

Date of report signed

Answer 7

= effective date of appraisal & date of the report

Question 8

Must identify characteristics of property that are relevant

Answer 8

*location, physical, legal, and economic attributes
*real property interests to be valued such as fee simple interest, leased fee interest, & partial interest
*personal property - trade fixtures, leased solar photovoltaic systems or intangible items that are not real property but are included in the appraisal
*any known easement, encumbrance, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of similar nature
*is the subject of the appraisal fractional interest, physical segment, or partial holding of a property
*property rights appraised fee simple, leasehold, and life estate, etc.

Question 9

Assignment Conditions

Answer 9

*extraordinary assumption (address uncertain as effective date)
*special assumption (an assumption directly applicable to specific service)
*hypothetical condition (contrary to what exist but is supposed for purpose of analysis)
*other assignments (laws & regs, DOT, IRS, HUD,

Question 10

Data Collection

Answer 10

*Market Area - 4 forces that influence value (economic, environmental, social, and govt)

Question 11

Sources of Data

Answer 11

Government all level, AI, banks, universities, DOT, planning boards, MLS, chambers of commerce, tax records info, zoning ordinance

Question 12

subject property data

Answer 12

*zoning, taxes, & flood zone
*physical, legal, economic, and location attributes
may include - measurements, observations (# of bedrooms and condition), type and quality of construction

Question 13

employment of extraordinary assumption

Answer 13

when data is missing

Question 14

Sources of Data for Subject Property

Answer 14

Deeds, title company, flood maps, zoning ordinances, MLS, cost manuals, tax maps, and assessor records

Question 15

Comparable Property Data

Answer 15

MLs, tax assessor, records or own files

Question 16

Market Analysis

Answer 16

Study of supply and demand in a specific area

Question 17

Highest and best use analysis criteria

Answer 17

• consider all uses that are possible for vacant site based on size, shape, and topography
  *all uses physically possible as well as legal by zoning (deed restrictions or other regs, change of zoning or zoning variance)
  *physically possible, legally permitted, and financially feasible & uses and conclude best max value)

Question 18

Potential conditions for HBU

Answer 18

*continue as is
*modify improvements thru renovation, conversion, or another use
*demolition improvements

Question 19

HBU land is vacant

Answer 19

1) physically possiblity
2) legal permissibility
3) financial feasibility
4) maximum productivity

Question 20

HBU as property improved

Answer 20

maximum productivity

Question 21

Land

Answer 21

improved or unimproved land

Question 22

unimproved land

Answer 22

raw land with development material

Question 23

improved land

Answer 23

land prepared for development due to grading, draining, installing streets & utilities

Question 24

site

Answer 24

improved land or parcel that does not require future land development or subdivision

Question 25

Cost approach

Answer 25

requires a separate land value estimate

Question 26

6 steps for developing opinions of land (GLADES)

Answer 26

1)sales comparision
2)extraction
3)allocation
4)land residual technique
5)ground rent capitalization
6) subdivision development

Question 27

sales comparison

Answer 27

most common, preferred method
1) find similar vacant parcels
2)analyze them to subject parcel
3) adjust the sales for salient differences

Question 28

extraction

Answer 28

based on improved sales and the depreciated cost (contributory value) of improvements is subtracted from the sales price
Sale price of comp - depreciated cost of improvement = land value of comp sale
*most applicable when improvements can be readily valued, when improvements are either new or very old

Question 29

Allocation

Answer 29

ratio of land value to improved property value…derived from what is typical in the market
Sales priceXtypical ratio of the land value to improvement value = land value
** used when vacant land sales are inadequate

Question 30

land residual technique

Answer 30

income approach based on economic principle of surplus productivity
*separate rent from improved land and building improvements
*formula for income capitalization IRV (income/rate=value)
Primarily used on income properties

Question 31

ground rent capitalization

Answer 31

income approach to land value. used when improved land rent is known as in improved land lease
Land rent/capitalization rate (derived from mkt) = land value

Question 32

Subdivision development

Answer 32

income approach to the valuation of tracts of unimproved land with subdivision potential.
*Common assignment, but complex procedure

Question 33

3 traditional and classical approaches to value

Answer 33

1) cost approach
2) sales comparison approach
3) income capitalization approach

Question 34

Cost approach

Answer 34

summation approach to value
*use sales comparable approach, then value contribution of the building and site improvements are added to indicate value of overall property

Question 35

sales comparison approach

Answer 35

comparison of the subject property to similar sales

Question 36

Superior properties

Answer 36

require a negative adjustment

Question 37

Inferior properties

Answer 37

require a positive adjustment

Question 38

adjustment process

Answer 38

fines the difference between comps to the subject
adjustment made to comp sales = to subject property, not vice versa

Question 39

elements of comparison (commonly used for adjustments)

Answer 39

*properties rights conveyed
*financing terms
*condition of sale
*expenditures made immediately after purchase
*market conditions
*location
*physical characteristics
*economic characteristics
*use/zoning
*nonrealty components

Question 40

Income Approaches

Answer 40

Income capitalization approach measure the present value of the future benefits derived from property ownership such as collecting future rent payments & eventual resale property in the future

Question 41

Reconciliation

Answer 41

involve the difference among the various value indications & arriving at a final opinion of a value