Procedures Flashcards
1
Q
What is the valuation process?
A
Systematic set of procedures an appraiser follows to a clients questions about real property.
2
Q
Valuation Process first step?
A
Identification of the problem.
3
Q
What are the 6 factors of identifying the problem?
A
- 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.
4
Q
1st set in valuation process. Second item. What is intended use?
A
The use of report or appraisal review assignment results.
5
Q
Purpose of an appraisal to development an opinion and can include these types of values (6 of them).
A
- Market value
- Use value
- Investment vaule
- Insurable value
- Assessed value
- Fair value
6
Q
1st step in valuation process. Step #3 What is purpose of assignment?
A
Object of the assignment.
7
Q
What is the effective date and the three different types?
A
Date of the value opinion.
- current
- retrospective
- prospective
8
Q
Step 1 of valuation process. #5 in process. Characteristics of subject property. There are two types, what are they?
A
- Relevant characteristics
2. physical charateristics
9
Q
What is relevant characteristics?
A
Features that may affect property value - legal, economic or physical
10
Q
What is physical characteristics?
A
Attributes of a property that are obserable or measurable as a matter of fact.
11
Q
1st step in valuation system. 6th item. Identify assigment conditions (there are 4 types)?
A
- Extraordinary assumption
- Special assumption
- Hypothetical condition
- Other assigment conditions
12
Q
What is extraordinary assumptions?
A
Assignmnet specific assumption as of the effective date regarding uncertain information used.
13
Q
What is special assumptions?
A
An assumption directly applicable to a appraisal if found false.
14
Q
What is hypothetical condition?
A
Condition that is contrary to what exists but is supposed for the purpose of analysis.
15
Q
What are other assignment condtions?
A
Might include laws, regulations, or guidelines.
16
Q
What is client?
What is indented user?
A
- Party who engages an appraiser by employment/contract in a specific assignment.
- Identifed by name as user of the appraisal.
17
Q
What is the 2nd step in the valuation process?
A
Scope of work determination.
18
Q
What is scope of work?
A
The type and extent of research and analysis in an appraisal.
19
Q
Under the scope of work. Ther are two items that help determine the scope of work. What are they?
A
- Type of assignment
2. Type of property
20
Q
3rd step in valuation process?
A
Data collection and property description
21
Q
3rd step in valuation process has 3 steps, what are they?
A
- Market area data
- subject property data
- comparible property data
22
Q
3 step in valuation process - data collection & property description. There are two types of data, what are they?
A
- General data
2. Specific data
23
Q
What is general data?
A
relates to the 4 forces that affect values - social, economic, government and enviromential.
24
Q
What is specific data?
A
Details about the property.
Primary - you collect
secondary - others collect
25
What is trend?
Series of related changes brought about by a chain of causes and effects.
26
4th Step in valuation process
Data Analysis
27
4th step in valuation process has two steps, what are they?
1. Market analysis
| 2. Highest and best use analysis
28
What is market analysis?
The study of the supply and demand in a specific area for a specific type of property.
29
what is the highest and best use, four areas, what are they?
1. legally permissibility
2. Physicially possible
3. Financial feasible
4. Max production
TREAT LAND AS VACANT/RAW
30
5th step in valuation process. What is it?
Land value opinion
31
2 tyes of land terms, what are they?
1. Raw land
| 2. Improved land
32
What is raw land?
unimproved
33
What is improved land?
It is considered as being prepared for development by grading, draining, installing streets and utilites, etc.
34
What is a site?
Improved land that doesnt require further developement
35
What are the 6 procedures that analyze land improved or unimproved?
1. sales comparasion
2. extraction
3. allocation
4. land residual technique
5. ground rent capitalization
6. subd development analysis
36
What is sales comparasion?
Searchs for sales of similar vacant parcels
37
What is extraction?
When vacant sales are unavailable analyze improved property sales similar to subject property.
38
What is extraction?
sales price - contibutory value of the improvements = extracted land value
39
What is allocation?
Analyzes improved property sales and allocates prices paid between the improved land and the total property usually as a ratio
40
What is land residual technique?
a method of estimating the value of land when given the NOI and value of improvements.
41
What is ground rent capitalization?
land that rent is known amount as an improved land lease (eg parking lot). acutal ground rent
42
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.
43
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
44
What is the 6th step in valuation process?
Application of the approches to value
45
there are 3 steps in the application of the approaches to value, what are they?
1. sales comparasion approach
2. income capitalization approach
3. cost approach
46
Applicaton of the approaches to value has 3 approaches to it, what are they?
1. cost approach
2. sales comparison approach
3. income capitalization approach
47
What is cost approach?
Reflects marketing thinking by recognizing that participants in the marketplace relate to cost.
48
What is sales comparasion apporach?
Derives a value indication by comparing the subject property to similar properties that have recently sold.
49
There are 10 elements of comparasion under the sales comparasion approach, what are they?
1. real property rights conveyed
2. financing terms
3. conditions of sale
4. expenditures made immediately after purchase
5. market conditions "time adjustment" MOST IMPORTANT
6. location
7. physical charatertiscs
8. economic
9. use
10. non realty components (personal property)
50
What is income capitalization approach?
Measure present value to the future benefit derived from property ownership. Involves income over a one year period.
51
What is cost?
Acutual or estimate amount to create, reproduce, replace or obtain a property.
52
there are 8 steps in the cost approach, what are they?
1. Estimate if vacant
2. estimate direct and indirect cost of improvements
3. estimate entrepreneurail incentive
4. add 2 and 3 = total cost
5. estimate depreciation
6. deducted 5
7 add site improvements
8. add to get total
53
Estimate the depreciation from 3 different sources, what are they?
1. physical deterioration
2. functional obsolesences
3. external obsolenscences
54
What is reproduction?
replica
55
What is replacement?
Estimated cost of construction at current prices with current (modern) products
56
What are direct costs?
1. labor
2. material
3. security
4. temp field office
5. storage
6. powerline installation/utiltiy costs
7. insurance
8. bonds
57
What are indirect or "soft" costs?
1. permits
2. planning and surveying fees
3. legal fees
4. cost to carry during construction
5. insurance and taxes during construction
6. cost ot carry after construction
7. lease, marketing
8. admin cost of title change
58
What is enterpreneurial incentives?
Marekt dervied figure that represents and enterpreneur expects or wants to receive.
59
What is entrepreneurial profit?
The amount that the entreprentur receives for his/her contribution.
60
What are the cost estimating methods?
1. comparative unit
2. unit in place
3 quality survey
61
What is the unit-in-place method?
building cost is estimated by adding the unit costs for the various building components
62
What is quality survey method?
Detailed method. It is time consuming like a builders bid.
63
What is the 7th step in valuation process?
Reconciliation value indications and final opinion of value = last in development.
64
Important note on reconciliation of value indications and final opinion of value.
Reconciliation takes place through out the valuation process
65
8th and final step in valuation process?
Report of defined value. A written report is always signed.
66
What is misleading?
Intentionally or unintentionally misrepresenting, misstating or concealing relevant facts or conclusions
67
What are the first two steps in the valuation system?
Exercise of judgment.
68
Steps 3 through 8 of valuation system are known as?
Excerise of execution
69
What are the elements of income capitalization approach?
1. income producing property
2. purchased as an investment
3. earning capability is the critical element
4. used to analyse future financial benefit
70
What is capitalization?
Conversion of income into value
71
Two types of capitalization, what are they?
1. direct capitalization
| 2. yield capitalization
72
What is direct capitalization?
income apporach. A method that values a property by taking N.O.I and divide by the predetermined capitalization rate.
73
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
74
How do you calcuate G.R.M. and what does it stand for?
Gross Rental Multiplier - sale price/monthly rent multiplier = value
75
What is N.O.I.?
Net Operating Income
76
What is I.R.V. Income
Rate Value
> than one
```
What is V.I.F? Value
Income Factor (more than one)
```
77
2 basic forumlas for direct capitalization?
I.R.V. and V.I F. income/rate value and value/income/factor
78
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.
79
What is P.G.I.?
Potential Gross Income - property at full occupancy before vacancy and operating expenses are deducted
80
What is E. G. I.?
Estimate Gross Income - anticipated income from all operations after allowances made for vacancy and collection loses and addtion for any other income.
81
what does N.O.I. mean?
Net income that remains after all operating expenses deducted from E.G.I. but before mortgage
82
What is P.T.C.F.?
Pre tax cash flow - NOI after mortage debt service but before income tax
83
What is A.T.C.F.?
After tax cash flow - after all expenses including income taxes
84
What is reversion?
Lump sum benefit that an investor receives or expects to receive upon term. or sales of investment
85
What is income rate?
Relationship between one years income and value of property.
86
There are 4 types of income rates, what are they?
1. Capitialzation rate (R)
2. Overall Capitalization Rate (Ro)
3. Equity Capitalization Rate (Re)
4. Mortgage Capitalizaton Rate (Rm)
87
What is Capitalization Rate (R)
Is the rate of return that an investmetn based on income that the proeprty is expected to generate
88
What is the overall Capitalization Rate (Ro)?
The relationship between the expected N.O.I.for a given year and the price or total value
89
What is Equlity Capitalization Rate (Re)?
Relfects the relationship between one years equity cash flow and the equity investment
90
Equity Capitalization rate (Re) has four other names, what are they?
Cash on cash rate
cash flow rate
cash throw off rate
equity divided rate
91
What is mortgage capitalization rate (Rm)?
Ratio of the annual debt service to the remaning principal balance annual debt service
Mortage Mortgage
Constant amt (loan)
92
What is Yield Rate?
Rates of return on capital usually express as compound annual percentage rate (greater than a year)
93
Yield rates include what (5)?
1. interest rate
2. Discount rate
3. Equity yield rate
4. Internal rate of return
5. Overall yield rate
94
What is interest rate?
Rate of return or yield on a debt capital
95
What is discount rate?
Rate of return on capital used to convert future payment into present value
96
What is risk?
The probability that foreseen events will not occur
97
What is nominal interest rate?
Stated or contracted rate an interest rate usually annual
98
there are two types of Income Capitalization, what are they?
Direct Capitalization
Yield Capitalization
99
What is direct Capitalization ?
Method used to convert an estimate of a single years income expentacy into value in one step.
net income/cap rate or x by factor
100
What is yield capitalization?
Method used to convert future benefits into present value aka discounted cash flow
101
What is the income capitalization formula?
I.R.V.
102
What is reciprocal?
number divded by 1 eg: reciprocal of 15 is 6.67
103
What is lease analysis?
the income apporach to value is an apporach of appraisal where the value is determined by the income that is produced by the property
104
What is Gross Lease?
Landlord pays all operating expenses
105
What is net lease?
The tenant pays all of the operating expenses
106
There are 5 types of leases, what are they?
1. Flat rental lease
2. Graduate rental lease
3. Revaluation lease
4. Index lease
5. Percentage lease
107
What is a flat rental lease?
Specific level of rent that continues throughout the lease
108
What is graduated rental lease and there are two types?
Specific changes in rent at one or more points.
Step up lease - increase at certain times
Step down lease - rents adjustments based on market rental spaces
109
What is revaluation lease?
A lease requiring a periodic appraisal of the property with rent based on it result
110
What is percentage lease?
Some portion of the rent represents percent of value of business
111
There are 8 types of rents, what are they?
1. contract rent
2. scheduled rent
3. market rent
4. effective rent
5. deficit rent
6. excess rent
7. Percentage rent
8. overage rent
112
What is rent mean?
Amount paid for the use of land, improvements or a capital good.
113
What is contract rent?
The actural rental income specified in a lease
114
What is scheduled rent?
Income due under existing leases
115
What is market rent?
Most probable rent that a property should bring in a competing and open market
116
What is effective rent?
Total base rent minus any rent concessions
117
What is deficit rent?
Contract rent less than market
118
What is excess rent?
Contract rent that exceeds market
119
What is percenage rent?
Percent of gross sales
120
What is overage rent?
Percent of rent paid over and above the guaranteed nimimum rent or base rent
121
What is operating expenses?
Periodic expenditures necessary to maintain real estate and continue production
122
What is fixed expenses?
taxes
| insurance
123
What are variable expenses?
Expenses that vary with the level of occupancy - mgt chgs, lease fee, utilities
124
What is replacement allowance?
Allowance that provices replacement of short lived building components (roof, flooring, boilers, driveways)
125
What is a personal inspection?
Physical observation performed to identity characteristics
126
What are the 6 buildling components?
1. foundation
2. framing
3. roofing
4. plumbing
5. electricial
6. HVAC
127
3 types of foundations?
1. Monolithic
2. Slab
3. Pier
128
2 types of wall construction?
1. Platform framing
| 2. Ballon framing
129
What is Platform framing?
Sits on top of sub floor
130
What is balloom framing
studs extend from sill to the roof
131
Plumbing is divided into 3 divisions?
1. supply
2. septic
3. mechanical - fixtures and applicances
132
6 designs of a house?
1. 1 story
2. 1 1/2 story
3. 2 story
4. Split
5. Contemporary
6. Specialized
133
What is G.L.A.?
Gross living area - finished above grade
134
How are residential structures are measured that share walls?
To the center point of the party wall
135
Condo units how are they measured?
Air space - inside the walls
136
What is G.B.A.?
Gross Building Area - total floor area of above ground areas
137
What is G.L.A. ? (new term)
Gross leasable area - total floor area for exclusive use of tenants
138
What is N.R.A.?
Net rentable area - your area plus common area
139
5 types of climate?
1. servere cold
2. cold
3. mix - humid
4. hot - humid
5. hot - dry/mix dry
140
IRV Formual is used in what multipler?
PGIM W/PGI = Potential Gross Income Multiplier / Potential
Gross Income
EGIM w/EIG & NIM - Estimated Gross Income Multiplier / Estimated
Gross Income & ?????
Ratio between sales and value
141
When do you use IRV?
When do you use VIF?
IRV - method for commerical bldgs or large apartment bldgs.
basic formual is NOT/R = V
VIF - PGI or EGI
142
what is direct capitalization?
methody used to conver an estimate of a single years income
expectancy into value in one step.
net income/cap rate or income x factor
143
What is OER?
operating expense ratio
Total operating expense / estimated gross income
144
What is reciprocal?
the number you would have to multiply it by to get the answer
Eg; 5 reciprocal is 1/5
145
What is Net Income Ratio
N.I.R is NOI / EGI
Net operating income / effective gross income
146
What is Equity Capitalization Rate Re
relfects the relationship between one years equity cash flow and the equity investment.
147
What is overall capitalization Rate Ro?
the relationship between a singles years NOI expectancey and the total property price or value
148
What is capitalizatyion Rate R?
ratio of 1 years NOI provided by an asset to the value of the asset
149
What is phycial deterioration?
wear and over overtime
150
Two types of Physical deterioration
Curable physical deterioration
uncurable physical deterioration
151
What is curable physical deterioration
minor items normally taken care of with normal regular maintenance
152
What is incurable Physical deterioration?
something that can not be practically or economicaly corrected as of the effective date of appraisal
153
What is a short lived item?
shorter than economic life of a structure (roof, carpet, appliances)
154
2 types of functional obsolescence
Curable functional obsolescence
incurable functional obsolescence
155
what is curable functional obsolescence
cost of replacing outmodeled or unacceptable component
156
What is incurable functional obsolescence?
cost of replacing outmodeled or unacceptable component is more than anticipated increase in value.
157
What is deficiences
lacking need updates
158
what is superadequacies
Has something buyers do not want
159
What is external obsolescences?
depreciation that comes from outside the property. Flooding, traffic,
high interest rates, job market. It is considered uncurable
160
What is depreciation?
Loss in value of improvements from any cause
161
What is book depreciation?
Amount of capital recapture deducted on owners books
162
What is economic life?
Period over which improvements contriubte to the property value
163
What is remaining economic life?
Estimated period over which existing improvements are expected to contribute economically.
164
What is actual age?
years elapsed since construction/purchase
165
What is effective age?
age base on amount of observed deterioration and obsolescense it has sustained
166
Three depreciation methods
Market Extraction
Economic age - life
breakdown
167
What is market extraction method?
relies on the avalability of comparable sales which you can extract the depreciation
168
What is economic age-life method
Estimate of depreciation in which a ratio between effective age
and total economic life is applied to curent cost with lump sum deduction (most common)
169
What is breakdown method?
measuring each cause of depreciation seprately (phyiscal, functional and external)
170
What is Market Extaction Method - 7 steps
1. select verified sales
2. adjust the sales for conditions
3. subtract the value of land
4. Estmate cost of improvements
5. Subtract depreciated costs
6. Convert dollars estimated of depreciation into a percent
7. Divide percent of depreciation by age of building and convert to annual rate.
171
What is economic age - life method of depreciation?
produces estimate of total depreciation - can't be broken out.
172
Breakdown methods of depreciation - 2
useful life
remaining useful life
173
What is useful life
Period of time a component may be expected to perform
174
What is remaining useful life?
Estimated period during which components will continue to provide
175
2 type of adjustments
Percentage adjustment
dollar amount adjustment
176
What is extraction?
land value with removed improvements
177
What is allocation?
collects information about comparable sales and establishes a ratio between site value and total value
178
What is corner influence?
the effect of value of a property located at or near an intersection of two streets.
179
Elements of comparison - 10
1. rights conveyed
2. financial terms
3. conditions of sale
4. expenditures make right after sale
5. market conditions MOST IMPORTANT
6. location
7. relative physical characteristics
8. relative economic characteristics
9. use/zone
10. non-realty components
180
What is exposure time?
before appraisal. length of time offered on the market available for sale.
181
What is market time?
opinion on the amount of time to sell.
182
What is sales comparasion approach
process od deriving a value for a property comparing sales of similar properties
183
What is arms length transactions?
transaction between parties who are acting in their own best interest
184
What is Quantitive Adjustments?
math process used to determine which comparative sales are inferior, similar ar superior.
185
5 types of quantitie adjustments?
```
pair-data analysis
statistical
graphic
cost analysis/cost related
capitalization of income
```
186
What is paired data analysis?
When two properties are equivalent in all respects except one.
187
What is qualitatie analysis? 3 types.
Recognizes the ineffciencies of real estate market with mathematical precision
1. trend
2. relative comparsion
3. ranking analysis
188
What is trend analysis?
measures trends in sale prices of comparable properties.
189
What is relative comparasion analysis?
Studies the relationship indicated by market data
190
What is ranking analysis?
sales ranks in ascending or descending order
191
What is sequence of adjustments?
order in which are applied
192
important note. financing terms are adjusted to market (aka concessions)
193
Again, what is reconcilation?
which 2 or more value indications are processed into a value opinion.
conclusion of final value
194
What is reconciliation criteria?
criteria that enables an appraiser to form a meaningful conclusion about the final value opinion.
195
What is point estimate?
final value report as single dollar amount
196
What is range of value?
The range in which the final market values fall in.
197
What is probability range?
confidence level associated with a specific value opinion.
198
a tax appeal assignment will commonly involve what effective date
Retrospective
