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Real Estate License Prep > Morgan (III-B,C,D) > Flashcards

Morgan (III-B,C,D) Flashcards

1
Q

An estimate of value

A

Appraisal

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2
Q

What determines value - appraisal or sales?

A

SALES (appraisals merely estimate property value)

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3
Q

The method by which a licensee performs a close review of a property based on professional appraisal methods and principals

A

Competitive (or Comparative) Market Analysis (CMA)

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4
Q

What is the purpose of an appraisal?

A

Provide an estimate of a property’s specific type of value as of a specified date

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5
Q

What are the three approaches to value in an appraisal?

A
  1. Direct sales comparison (market data) approach
  2. Cost approach
  3. Income approach
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6
Q

What is the orderly, concise, and systematic procedure for reaching an estimate of value

A

Appraisal process

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7
Q

List the sequence of procedures in the appraisal process.

A
  1. Define/state the problem
  2. Determine the data needed; collect it
  3. Determine the highest and best use of the land and the improvements
  4. Estimate the property value using the three approaches to value
  5. Reconcile the data (analyze it) and settle on a final value estimate
  6. Prepare the final report of the value estimate
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8
Q

___ 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.

A

Substitution

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9
Q

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?

A

Anticipation

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10
Q

Which approach to value primarily uses anticipation?

A

Income approach

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11
Q

Which approach to value commonly uses substitution?

A

Market and cost approaches

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12
Q

Combining adjoining properties into a single property with a total value greater than the sum of their separate plot values

A

Plottage

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13
Q

The process of assembling properties via plottage

A

Assemblage

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14
Q

___ determines the use that will produce the greatest current value or the most profitable return on investment

A

Highest and best use

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15
Q

The mix of land uses that maximizes value for all properties involved

A

Balance

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16
Q

All properties in a given area are likely to benefit from being similar to the others

A

Conformity

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17
Q

The benefit a smaller property receives from being among larger, more valuable ones

A

Progression

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18
Q

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

A

Regression

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19
Q

___ 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

A

Contribution

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20
Q

The loss of value resulting from any cause

A

Depreciation

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21
Q

Physical factors, such as normal wear and tear as well as poor and/or deferred maintenance or prolonged neglect leading to depreciation

A

Deterioration

22
Q

Outdated functionality or non-property influences leading to depreciation

A

Obsolescence

23
Q

List the three types of depreciation used in valuations/appraisals

A
  1. Physical deterioration
  2. Functional obsolescence
  3. External/economic/locational obsolescence
24
Q

What is the difference between curable and incurable depreciation?

A

Curable - can be remedied

Incurable - not cost-effective or feasible to fix

25
Q

Any downturn from the original condition fo the property

A

Physical deterioration

26
Q

Outdated design or safety standards

A

Functional obsolescence

27
Q

Surrounding influences on a subject property that decrease the value

A

External/economic/locational obsolescence

28
Q

True or false - only improvements can be depreciated. Land simply loses value.

A

True

29
Q

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?

A

Direct sales comparison (market data) approach

30
Q

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?

A

Cost approach (also known as summation approach)

31
Q

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.

A

Cost

32
Q

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 ___.

A

Depreciation; new construction cost

33
Q

List the 5 steps in the preparation of a cost approach analysis.

A
  1. Estimate the value of the land only (as if vacant)
  2. Estimate the new construction cost of all improvements
  3. Determine the accrued (or combined) depreciation from all three types of depreciation as they affect the current improvements
  4. Subtract the accrued depreciation of the improvement from the estimate of new construction to get the estimated value of the current improvements
  5. Add the value of the land to the value of the improvements
34
Q

What are the two methods for determining the new construction costs of improvements?

A
  1. Replacement cost

2. Reproduction cost

35
Q

What determines the current cost of an exact copy of the improvements (flaws and all)?

A

Reproduction cost

36
Q

What determines the current cost of an acceptably similar copy (often somewhat more contemporary in functionality and construction)?

A

Replacement cost

37
Q

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?

A

Income approach

38
Q

The income approach is based on the principle of ___.

A

Anticipation

39
Q

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.

A

Return on investment

40
Q

What is the term for the rate of return on the cost of the investment?

A

Capitalization rate (or cap rate)

41
Q

Compute the capitalization rate.

A

Divide the property’s net operating income by its price

42
Q

What is the term for the maximum rental income at 100% occupancy?

A

Potential/projected/scheduled gross income

43
Q

What is the term for the actual income after subtracting vacancies and rent collection losses?

A

Effective gross income3

44
Q

What is the term for what’s left of the effective gross income after subtracting all of the property’s operating expenses?

A

Net operating income (NOI)

45
Q

How do you estimate a property value from a cap rate?

A

Divided the subject property NOI by the cap rate

46
Q

How is value estimated using the gross rent multiplier (GRM) or gross income multiplier (GIM)?

A

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)

47
Q

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.

A

USPAP (Uniform Standards of Professional Appraisal Practice)

48
Q

What is a licensee’s CMA typically used for?

A

To establish a reasonable listing price for sellers and a reasonable offering price for buyers

49
Q

Who is responsible to set a list price and determine an offering price?

A

Seller; buyer

50
Q

What are the two broad categories of appraisers?

A
  1. Certified general appraisers (qualified to appraise all types of real estate)
  2. Certified residential appraisers (qualified to appraise all residential real estate)

Real Estate License Prep (23 decks)

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