Principles of Real estate 2

Question 1

Appraisal

Answer 1

• a estimate of the quantity, quality or value of something
• the process through which conclusions of property values are obtained
• the report that sets forth the process of estimation and conclusion of value

Question 2

loan to value ratio (LTV)

Answer 2

 The percentage of value of sales price that the is willing to finance

Question 3

Desk Review

Answer 3

• Most lender, especially for conforming loan programs, conduct simple desk reviews- normally at their desks
• These reviews simply go through a checklist of items as they analyze the appraisal report for the completeness and acceptable conclusions

Question 4

field review

Answer 4

• An independent, third party appraiser will be contracted to review the appraisal report, and then actually verify the accuracy of the data, elements and procedures used by the original appraiser

Question 5

lite appraisals

Answer 5

 Instead of a full blown appraisal report, an exterior or “drive by” report is deemed acceptable

Question 6

Highest and best use

Answer 6

the legal use that gives the greatest return in money and/or amenities

Question 7

principle of contribution

Answer 7

the value of a property is equal to the sum of the contributory value of each of its component parts

Question 8

principle of change

Answer 8

the forces acting on a parcel of land are always affecting the value of the land

Question 9

principle of anticipation

Answer 9

that the purchase is affected by the expectation of future appeal and benefits

Question 10

principle of substitution

Answer 10

value of a commodity is influenced by the cost of acquiring a substitute or comparable item.

Question 11

principle of conformity

Answer 11

the value is maximized when there is a reasonable degree of homogeneity, or sameness, in a neighborhood

Question 12

principle of increasing and decreasing returns

Answer 12

 It is prudent to improve property when the value added by the improvement exceeds the cost of the improvement

Question 13

principle of supply and demand

Answer 13

 When the demand for real estate is great and the supply is low, prices in the market place go up
 When the supply is high and the demand is low, prices decline

Question 14

principle of regression

Answer 14

 The presence of lower priced properties in the area will cause a decline in value of the subject property

Question 15

principle of progression

Answer 15

• The value of a subject property is increased by the value of surrounding properties

Question 16

principle of competition

Answer 16

 The absence of competition will cause prices to increase in the marketplace

Question 17

characteristics of value

Answer 17

Demand
utility
scarcity
transferability

Question 18

market value

Answer 18

the highest price a ready, willing and able buyer would pay and the lowest price a ready, willing and able seller would accept, neither being under any pressure to act

Question 19

ad valorem taxes

Answer 19

 Are based upon the assessed value of the property and the existing tax rate

Question 20

assessed value

Answer 20

the value set upon property for taxation purposes

Question 21

sales comparison approach

Answer 21

the process of estimating the value of a property by examining and comparing actual sales of comparable properties

Question 22

income approach

Answer 22

the process of estimating the value of an income producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life

Question 23

cost approach to value

Answer 23

an estimate of value based on current construction costs, less depreciation, plus land value

Question 24

comparables

Answer 24

properties listed in an appraisal report that are substantially equivalent to the subject property and are used to compare and establish a value of the subject property

Question 25

depreciation

Answer 25

• in appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence and external obsolescence
• in real estate investment, and expense deduction for tax purposes taken over the period of ownership of income property

Question 26

physical deterioration

Answer 26

a reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by action of the elements or by ordinary wear and tear

Question 27

functional obsolescence

Answer 27

a loss of value to an improvement to real estate, arising from functional problems, often caused by age or poor design

Question 28

external obsolescence

Answer 28

reduction in a property’s value caused by factors outside the subject property, such as social or environmental forces; also economic (or locational) obsolescence

Question 29

chronological age

Answer 29

the actual age of property in years

Question 30

effective age

Answer 30

the appraiser’s estimate of the age of the house based upon its ongoing maintenance and upgrades

Question 31

gross rental multiplier

Answer 31

a figured used as a multiplier of the gross monthly rental income of a property to produce an estimate of the property’s value

Question 32

reconciliation

Answer 32

the final step in the appraisal process, in which the appraiser weighs the estimates of value received from the sales comparison, cost and income approaches to arrive at a final estimate of market value of the subject property

Question 33

mortgagor

Answer 33

the borrower in a mortgage loan transaction

Question 34

mortgagee

Answer 34

the lender in a mortgage loan transaction

Question 35

promissory note

Answer 35

an unconditional written promise of one person to pay a certain sum of money to another at a future, specified time

Question 36

mortgage

Answer 36

a conditional transfer or pledge of real estate as security for the payment of a debt
also, the document creating a mortgage lien

Question 37

foreclosure

Answer 37

a legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document
the foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage