Principles of Real estate 2 Flashcards
Appraisal
- 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
loan to value ratio (LTV)
The percentage of value of sales price that the is willing to finance
Desk Review
- 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
field review
• 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
lite appraisals
Instead of a full blown appraisal report, an exterior or “drive by” report is deemed acceptable
Highest and best use
the legal use that gives the greatest return in money and/or amenities
principle of contribution
the value of a property is equal to the sum of the contributory value of each of its component parts
principle of change
the forces acting on a parcel of land are always affecting the value of the land
principle of anticipation
that the purchase is affected by the expectation of future appeal and benefits
principle of substitution
value of a commodity is influenced by the cost of acquiring a substitute or comparable item.
principle of conformity
the value is maximized when there is a reasonable degree of homogeneity, or sameness, in a neighborhood
principle of increasing and decreasing returns
It is prudent to improve property when the value added by the improvement exceeds the cost of the improvement
principle of supply and demand
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
principle of regression
The presence of lower priced properties in the area will cause a decline in value of the subject property
principle of progression
• The value of a subject property is increased by the value of surrounding properties
principle of competition
The absence of competition will cause prices to increase in the marketplace
characteristics of value
Demand
utility
scarcity
transferability
market value
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
ad valorem taxes
Are based upon the assessed value of the property and the existing tax rate
assessed value
the value set upon property for taxation purposes
sales comparison approach
the process of estimating the value of a property by examining and comparing actual sales of comparable properties
income approach
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
cost approach to value
an estimate of value based on current construction costs, less depreciation, plus land value
comparables
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
depreciation
- 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
physical deterioration
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
functional obsolescence
a loss of value to an improvement to real estate, arising from functional problems, often caused by age or poor design
external obsolescence
reduction in a property’s value caused by factors outside the subject property, such as social or environmental forces; also economic (or locational) obsolescence
chronological age
the actual age of property in years
effective age
the appraiser’s estimate of the age of the house based upon its ongoing maintenance and upgrades
gross rental multiplier
a figured used as a multiplier of the gross monthly rental income of a property to produce an estimate of the property’s value
reconciliation
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
mortgagor
the borrower in a mortgage loan transaction
mortgagee
the lender in a mortgage loan transaction
promissory note
an unconditional written promise of one person to pay a certain sum of money to another at a future, specified time
mortgage
a conditional transfer or pledge of real estate as security for the payment of a debt
also, the document creating a mortgage lien
foreclosure
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
