Module 8 The Nature of Value Flashcards
Distinguish among cost, price and value
Cost is a fact
Price is the amount asked, offered or paid for a property
also a fact and once stated it becomes a historical fact
Value is never a fact; it is an opinion of the present worth of the future benefits that accrue to real property ownership
Identify the four factors that create value
Utility
Scarcity
Desire
Effective purchasing power
Types of Cost
The total dollar expenditure to develop an improvement. 3 Categories of Cost -Direct Cost -Indirect Costs -Entrepreneurial Incentive
Price
Price is the amount asked, offered or paid for a property
also a fact and once stated it becomes a historical fact.
May or may not have any relation to the value attributed
to a particular property
Value
The monetary relationship between properties and those who buy,
sell or use those properties
Never a fact; it is an opinion of the present worth of the future
benefits that accrue to real property ownership
Utility
In order for something to have value, it must have utility in the mind of the person who intends to use it or benefit from it. Real property must have utility to satisfy specific needs and desires such as the following:
a) Basic Shelter
b)Ability to generate income for commercial properties
c)Both of the above apply in farm properties
Utility can be found in design features called amenity
Amenity
A tangible or intangible benefit of real property that enhances its attractiveness or increases the satisfaction of the user
Scarcity
The present or anticipated undersupply of an item relative to the demand for it. Conditions of scarcity contribute to value
Desire
A purchasers wish for an item to satisfy human needs or individual wants beyond essential life support needs
Effective Purchasing Power
The ability of an individual or group to participate in a market to acquire goods and services with cash or its equivalent
Use Value
The value a specific property has under a specific use
Value in Use
the value of a property assuming a specific use, which may or may not be the properties highest and best use on the effective date of the appraisal.
Value in use may or may not be equal to market value but is different conceptually
Investment Value
it is not market value for an investment property. Instead, it is the value of an investment property to a particular investor based on their investment requirements. So you need to remember that investment value it is not based on what the typical purchaser would pay for an income-producing property. Instead, it is very specific to the individual investor (or class of investors) that is interested in a specific property
A goods capacity to satisfy human desires or needs is known as A) Effective demand B) Functional obsolescence C) Creative demand D) Utility
D) Utility
The value based on ad valorem tax rolls is called \_\_\_\_\_\_\_\_\_\_ value. A) Fair B) Investment C) Market D) Assessed
D) assessed
The total dollar expenditure to develop an improvement is called: A) Going concern B) Price C) Use value D) Cost
D) Cost
_____________ costs are identified with the overall project and include all
the expenditures required to bring a property into an operating state.
A) Overall
B) Construction
C) Development
D) Initial
C) Develoment
A residential developer notices that a farm on the outskirts of a suburb is
listed for sale. The developer would like to purchase and develop the farm
acreage, but the necessary holding time before the land can be developed
is estimated to be 3 to 5 years. How is the holding cost best identified?
A) Construction cost
B) Development cost
C) Builder’s overhead
D) Entrepreneurial incentive
B) Development Cost
Feedback: Correct. This cost includes the overall project including acquisition cost and all other related expenditures required to bring the property into an operation state.
A building was designed to accommodate special needs of its occupants. The
builder was concerned that the bank financing the construction might not
provide all the necessary funding to cover the cost of the project. Does the builder
have a legitimate concern?
A) Yes, because the bank will not permit the builder to include the entrepreneurial
incentive
B) Yes, because banks generally lend based on the property’s market value rather than
the cost of construction
C) No, because banks must lend based on the agreed contract price between the builder
and borrower
D) No, banks typically lend based on the cost of the project
B) Yes, Because banks generally lend based on the properties market value rather than the cost of construction
Feedback: Correct. Cost and market value may be different, particularly in specialized construction.
A tight financing market has contributed to driving down values for properties in a
residential area. What is the strongest value factor connected to the down market
in this scenario?
A) Utility
B) Effective purchasing power
C) Desire
D) Scarcity
B) Effective purchasing power
Feedback: Correct. The tight financing makes it diffcult for individuals or groups to participate in the market.
An appraiser has been asked to appraise the real estate value of a bowling entertainment center complex under that specific use. What type of value is the appraiser analyzing in this assignment? A) Market value B) Going-concern C) Investment value D) Use value
D) Use Value
Which of the following terms is an independent factor that creates value A) Investment B) Price C) Cost D) Utility
D) Utility
Feedback: Correct. Utility is one of the four factors that create value
An appraiser is working in a disaster-releif area and has an assignment to value only the building improvement portion of the property. What type of value is the appraiser analyzing in this assignment? A) Fair value B) Use Value C) Market Value D) Insurable Value
D) Insurable Value
Feedback: Correct. Insurable Value does not generally include the value of the rest of the site or land
