Morgan (III-B,C,D) Flashcards
An estimate of value
Appraisal
What determines value - appraisal or sales?
SALES (appraisals merely estimate property value)
The method by which a licensee performs a close review of a property based on professional appraisal methods and principals
Competitive (or Comparative) Market Analysis (CMA)
What is the purpose of an appraisal?
Provide an estimate of a property’s specific type of value as of a specified date
What are the three approaches to value in an appraisal?
- Direct sales comparison (market data) approach
- Cost approach
- Income approach
What is the orderly, concise, and systematic procedure for reaching an estimate of value
Appraisal process
List the sequence of procedures in the appraisal process.
- Define/state the problem
- Determine the data needed; collect it
- Determine the highest and best use of the land and the improvements
- Estimate the property value using the three approaches to value
- Reconcile the data (analyze it) and settle on a final value estimate
- Prepare the final report of the value estimate
___ is the process of looking at the maximum amount it would cost to buy an alternate property that is the same as the subject property, either by a comparable replacement or an exact reproduction.
Substitution
What process estimates value based on looking ahead at the value, positive or negative, on a property due to possibility of future changes to either the property or its surroundings?
Anticipation
Which approach to value primarily uses anticipation?
Income approach
Which approach to value commonly uses substitution?
Market and cost approaches
Combining adjoining properties into a single property with a total value greater than the sum of their separate plot values
Plottage
The process of assembling properties via plottage
Assemblage
___ determines the use that will produce the greatest current value or the most profitable return on investment
Highest and best use
The mix of land uses that maximizes value for all properties involved
Balance
All properties in a given area are likely to benefit from being similar to the others
Conformity
The benefit a smaller property receives from being among larger, more valuable ones
Progression
The negative impact on the value of a large and/or expensive property when it is in an area of smaller, lower-pried, or run-down properties
Regression
___ refers to the increasing and diminishing returns, which makes a cost/benefit analysis of the actual increase in property value based on the cost of an improvement
Contribution
The loss of value resulting from any cause
Depreciation
Physical factors, such as normal wear and tear as well as poor and/or deferred maintenance or prolonged neglect leading to depreciation
Deterioration
Outdated functionality or non-property influences leading to depreciation
Obsolescence
List the three types of depreciation used in valuations/appraisals
- Physical deterioration
- Functional obsolescence
- External/economic/locational obsolescence
What is the difference between curable and incurable depreciation?
Curable - can be remedied
Incurable - not cost-effective or feasible to fix
Any downturn from the original condition fo the property
Physical deterioration
Outdated design or safety standards
Functional obsolescence
Surrounding influences on a subject property that decrease the value
External/economic/locational obsolescence
True or false - only improvements can be depreciated. Land simply loses value.
True
Which approach to value compares the subject property (the one being apparised) to similar properties (comparable properties/comparables/comps) that have recently sold in the local market?
Direct sales comparison (market data) approach
Which approach to value estimates value based on what it would cost to buy the land and build comparable replacements for all of the property improvements?
Cost approach (also known as summation approach)
The ___ approach is commonly used for commercial properties, as well as for special-use properties that do not have comparables, such as churches, schools, and municipal buildings.
Cost
In the cost approach, in order to adjust for the difference between new construction and existing improvements, the current structures are evaluated for ___, which is then subtracted from the ___.
Depreciation; new construction cost
List the 5 steps in the preparation of a cost approach analysis.
- Estimate the value of the land only (as if vacant)
- Estimate the new construction cost of all improvements
- Determine the accrued (or combined) depreciation from all three types of depreciation as they affect the current improvements
- Subtract the accrued depreciation of the improvement from the estimate of new construction to get the estimated value of the current improvements
- Add the value of the land to the value of the improvements
What are the two methods for determining the new construction costs of improvements?
- Replacement cost
2. Reproduction cost
What determines the current cost of an exact copy of the improvements (flaws and all)?
Reproduction cost
What determines the current cost of an acceptably similar copy (often somewhat more contemporary in functionality and construction)?
Replacement cost
Which approach to value estimates the present value of future net income of income-producing properties through the process of capitalization, which converts future income projections into current value?
Income approach
The income approach is based on the principle of ___.
Anticipation
The principle of anticipation asserts that value is created by the expectation of benefits to be derived from ___ during ownership as well as any capital gain realized at resale.
Return on investment
What is the term for the rate of return on the cost of the investment?
Capitalization rate (or cap rate)
Compute the capitalization rate.
Divide the property’s net operating income by its price
What is the term for the maximum rental income at 100% occupancy?
Potential/projected/scheduled gross income
What is the term for the actual income after subtracting vacancies and rent collection losses?
Effective gross income3
What is the term for what’s left of the effective gross income after subtracting all of the property’s operating expenses?
Net operating income (NOI)
How do you estimate a property value from a cap rate?
Divided the subject property NOI by the cap rate
How is value estimated using the gross rent multiplier (GRM) or gross income multiplier (GIM)?
Multiply the subject property’s income by the GRM
GRM is calculated by dividing each comparable property’s sales price by its gross income (monthly or annually)
An appraiser’s appraisal is a more extensive analysis than a CMA because it follows a set of comprehensive guidelines outlined in the ___ and results in one of several standard-format appraisal reports.
USPAP (Uniform Standards of Professional Appraisal Practice)
What is a licensee’s CMA typically used for?
To establish a reasonable listing price for sellers and a reasonable offering price for buyers
Who is responsible to set a list price and determine an offering price?
Seller; buyer
What are the two broad categories of appraisers?
- Certified general appraisers (qualified to appraise all types of real estate)
- Certified residential appraisers (qualified to appraise all residential real estate)
