Procedures Flashcards
What is the valuation process?
Systematic set of procedures an appraiser follows to a clients questions about real property.
Valuation Process first step?
Identification of the problem.
What are the 6 factors of identifying the problem?
- identifiy the client and the intended useres.
- Identify the intended use.
- Identify type and definition of value.
- Identify effective date of the opinion.
- identify relevant charactertiscs of the property.
- Identify assignment conditions.
1st set in valuation process. Second item. What is intended use?
The use of report or appraisal review assignment results.
Purpose of an appraisal to development an opinion and can include these types of values (6 of them).
- Market value
- Use value
- Investment vaule
- Insurable value
- Assessed value
- Fair value
1st step in valuation process. Step #3 What is purpose of assignment?
Object of the assignment.
What is the effective date and the three different types?
Date of the value opinion.
- current
- retrospective
- prospective
Step 1 of valuation process. #5 in process. Characteristics of subject property. There are two types, what are they?
- Relevant characteristics
2. physical charateristics
What is relevant characteristics?
Features that may affect property value - legal, economic or physical
What is physical characteristics?
Attributes of a property that are obserable or measurable as a matter of fact.
1st step in valuation system. 6th item. Identify assigment conditions (there are 4 types)?
- Extraordinary assumption
- Special assumption
- Hypothetical condition
- Other assigment conditions
What is extraordinary assumptions?
Assignmnet specific assumption as of the effective date regarding uncertain information used.
What is special assumptions?
An assumption directly applicable to a appraisal if found false.
What is hypothetical condition?
Condition that is contrary to what exists but is supposed for the purpose of analysis.
What are other assignment condtions?
Might include laws, regulations, or guidelines.
What is client?
What is indented user?
- Party who engages an appraiser by employment/contract in a specific assignment.
- Identifed by name as user of the appraisal.
What is the 2nd step in the valuation process?
Scope of work determination.
What is scope of work?
The type and extent of research and analysis in an appraisal.
Under the scope of work. Ther are two items that help determine the scope of work. What are they?
- Type of assignment
2. Type of property
3rd step in valuation process?
Data collection and property description
3rd step in valuation process has 3 steps, what are they?
- Market area data
- subject property data
- comparible property data
3 step in valuation process - data collection & property description. There are two types of data, what are they?
- General data
2. Specific data
What is general data?
relates to the 4 forces that affect values - social, economic, government and enviromential.
What is specific data?
Details about the property.
Primary - you collect
secondary - others collect
What is trend?
Series of related changes brought about by a chain of causes and effects.
4th Step in valuation process
Data Analysis
4th step in valuation process has two steps, what are they?
- Market analysis
2. Highest and best use analysis
What is market analysis?
The study of the supply and demand in a specific area for a specific type of property.
what is the highest and best use, four areas, what are they?
- legally permissibility
- Physicially possible
- Financial feasible
- Max production
TREAT LAND AS VACANT/RAW
5th step in valuation process. What is it?
Land value opinion
2 tyes of land terms, what are they?
- Raw land
2. Improved land
What is raw land?
unimproved
What is improved land?
It is considered as being prepared for development by grading, draining, installing streets and utilites, etc.
What is a site?
Improved land that doesnt require further developement
What are the 6 procedures that analyze land improved or unimproved?
- sales comparasion
- extraction
- allocation
- land residual technique
- ground rent capitalization
- subd development analysis
What is sales comparasion?
Searchs for sales of similar vacant parcels
What is extraction?
When vacant sales are unavailable analyze improved property sales similar to subject property.
What is extraction?
sales price - contibutory value of the improvements = extracted land value
What is allocation?
Analyzes improved property sales and allocates prices paid between the improved land and the total property usually as a ratio
What is land residual technique?
a method of estimating the value of land when given the NOI and value of improvements.
What is ground rent capitalization?
land that rent is known amount as an improved land lease (eg parking lot). acutal ground rent
What is subdivision development analysis?
aka cost development method. Can be used for larger tracts of unimproved land that has potential for development in subdivisions.
should be after card 60. What is Comparative Unit Method?
A method of estimateing the cost of a structure. Most common method if estimating costs used. Offten called the square foot method of estimating cost
What is the 6th step in valuation process?
Application of the approches to value
there are 3 steps in the application of the approaches to value, what are they?
- sales comparasion approach
- income capitalization approach
- cost approach
Applicaton of the approaches to value has 3 approaches to it, what are they?
- cost approach
- sales comparison approach
- income capitalization approach
What is cost approach?
Reflects marketing thinking by recognizing that participants in the marketplace relate to cost.
What is sales comparasion apporach?
Derives a value indication by comparing the subject property to similar properties that have recently sold.
There are 10 elements of comparasion under the sales comparasion approach, what are they?
- real property rights conveyed
- financing terms
- conditions of sale
- expenditures made immediately after purchase
- market conditions “time adjustment” MOST IMPORTANT
- location
- physical charatertiscs
- economic
- use
- non realty components (personal property)
What is income capitalization approach?
Measure present value to the future benefit derived from property ownership. Involves income over a one year period.
What is cost?
Acutual or estimate amount to create, reproduce, replace or obtain a property.
there are 8 steps in the cost approach, what are they?
- Estimate if vacant
- estimate direct and indirect cost of improvements
- estimate entrepreneurail incentive
- add 2 and 3 = total cost
- estimate depreciation
- deducted 5
7 add site improvements - add to get total
Estimate the depreciation from 3 different sources, what are they?
- physical deterioration
- functional obsolesences
- external obsolenscences
What is reproduction?
replica
What is replacement?
Estimated cost of construction at current prices with current (modern) products
What are direct costs?
- labor
- material
- security
- temp field office
- storage
- powerline installation/utiltiy costs
- insurance
- bonds
What are indirect or “soft” costs?
- permits
- planning and surveying fees
- legal fees
- cost to carry during construction
- insurance and taxes during construction
- cost ot carry after construction
- lease, marketing
- admin cost of title change
What is enterpreneurial incentives?
Marekt dervied figure that represents and enterpreneur expects or wants to receive.
What is entrepreneurial profit?
The amount that the entreprentur receives for his/her contribution.
What are the cost estimating methods?
- comparative unit
- unit in place
3 quality survey
What is the unit-in-place method?
building cost is estimated by adding the unit costs for the various building components
What is quality survey method?
Detailed method. It is time consuming like a builders bid.
What is the 7th step in valuation process?
Reconciliation value indications and final opinion of value = last in development.
Important note on reconciliation of value indications and final opinion of value.
Reconciliation takes place through out the valuation process
8th and final step in valuation process?
Report of defined value. A written report is always signed.
What is misleading?
Intentionally or unintentionally misrepresenting, misstating or concealing relevant facts or conclusions
What are the first two steps in the valuation system?
Exercise of judgment.
Steps 3 through 8 of valuation system are known as?
Excerise of execution
What are the elements of income capitalization approach?
- income producing property
- purchased as an investment
- earning capability is the critical element
- used to analyse future financial benefit
What is capitalization?
Conversion of income into value
Two types of capitalization, what are they?
- direct capitalization
2. yield capitalization
What is direct capitalization?
income apporach. A method that values a property by taking N.O.I and divide by the predetermined capitalization rate.
What is yield capitalization?
A method converting future income from an investment into present value by discounting each years income buy using an appropriate discount rate
How do you calcuate G.R.M. and what does it stand for?
Gross Rental Multiplier - sale price/monthly rent multiplier = value
What is N.O.I.?
Net Operating Income
What is I.R.V. Income
Rate Value
> than one
What is V.I.F? Value Income Factor (more than one)
2 basic forumlas for direct capitalization?
I.R.V. and V.I F. income/rate value and value/income/factor
What is the future benefits of income capitalization?
A valuation method that appraisers use to estimate the value of income producing real estate. It is based on the expectation of future benefits.
What is P.G.I.?
Potential Gross Income - property at full occupancy before vacancy and operating expenses are deducted