procedures review chapters Flashcards
1,2,5& 6
- The appraisal process of USPAP defines two separate and defined actions by an appraiser
development and reporting.
- First step Identifying the problem consists of:
identifying information, the appraiser uses to determine the scope of work in an assignment. Ex. - Relevant property characteristics
- The Client is always an
intended user in an assignment.
Purpose of an appraisal is
ALWAYS to develop a value opinion for a defined type of value. (Not always Market Value)
- Standards Rule1-5 requires:
when the value opinion developed is market value, analysis of any agreement of sale, listing, or options for the subject and all sales of the property occurring within three years prior to the effective date of the appraisal. (3 tear Disclaimer).
- Exposure time expresses
see pg 6.
“for the property to have sold for market value on the effective date, the property would have had to have been on the market for (a particular period of time).
- A retrospective appraisal uses
an effective date in the past. (Retro Refers to the Past)
- Extraordinary assumption:
The appraisal report must clearly state that if the extraordinary assumption is found to be false, the value opinion may be affected. Ex. (Drive by Appraisal) (Public Utilities are on)
- Jurisdictional exception is
“an assignment condition established by applicable law or regulation, which precludes an appraiser from complying with a part of USPAP.” In other words, jurisdictional exception is something that takes away from the purpose of USPAP
- Developing an unnecessary valuation approach:
addressed in reconciliation by including statements such as, “The cost approach was included solely at the request of the client; it has been given no weight in arriving at the final opinion of value because ….”
- General Data Sources are
typically, government records, public records, etc. appraisers rely on for their timeliness and accuracy.
- An Appraisal Report:
SUMMARIZES the information and analyses performed in the appraisal.
- Restricted Appraisal Report can be
brief and to the point when compared to an Appraisal Report. The Restricted Appraisal Report states the facts and conclusions of the appraisal. For the intended user only or intended user(s) stated by name.
- Standards 2-3 - All written real property appraisal reports
MUSTcontain a signed certification containing language like the following… (See Pg. 25 for specifics)
- A Work file preserves evidence of
the appraiser’s observance of USPAP and other information that is required to support the appraisers’ findings and conclusions. An appraiser must retain the work file for a minimum of (5) years after completion, or 2 years after judicial proceedings are final.
- The purpose of the appraisal should always be
a. an assumption of the appraisal.
b. highest and best use of the property on the date viewed.
c. to determine market value.
d. to develop an opinion of value appropriate to the intended use of the appraisal.
d. to develop an opinion of value appropriate to the intended use of the appraisal.
- An Appraisal Report ______________ certain information and analyses performed in an appraisal assignment.
a. abbreviates
b. interprets
c. states
d. summarizes
d. summarizes
- When jurisdictional exception is an assignment condition, the report must include a(n)
a. appropriate disclosure of the exception in the certification.
b. citation of the law or regulation requiring the exception.
c. disclosure that USPAP does not apply in the assignment.
d. extraordinary assumption regarding its use.
Chapter
b. citation of the law or regulation requiring the exception.
Government Survey system Important measurements
a. Township = 36 sections
b. A section contains 640 acres = 1 sq. mile
c. Acre contains 43,560 square feet
d. Mile is 5,280 feet
- A properties address is NOT
a legal description
- Lot and Block system is a type of system used for
platted property subdivisions
Meets and Bounds system is
a type of legal description that starts at a (POB) point of beginning.
- Market Area is:
the broadest of all terms identifying the boundaries of a particular area.
When describing market area.
The appraiser is providing an account of the land uses and characteristics.
Neighborhood -
is a compilation or a group of complimentary land uses
- Frontage –
dimensions across the access side. The first number in a lot size. Front Feet
- District:
The term district is the narrowest of definitions of a market area. A district is an area consisting of one land use, such as multi-family residential, commercial, and industrial, etc.
- Gentrification is
a form of rapid revitalization with displacement of current residents **that takes place in a more natural fashion and is not drive by any public movement.
- Zones set-up in a hierarchy are referred to as
Pass-through zoning which only goes in one direction
residential, commercial, Industrial, Agricultural/Rural
- Nonconforming:
uses occur when land use doesn’t conform to current zoning laws; established before the new laws were enacted or the property has been granted a variance. (Legal grandfathered nonconforming use)
- Use variance-
permits a property owner to use land in a way that’s not allowed in that zone.
- Easement in gross
benefits a person or entity only and not a parcel of land.
- Geologic considerations include
bedrock, soil composition, and topography.
- Externalities-
Nuisances outside the property boundaries should be fully described by the appraiser (external obsolescence)
- What is an area consisting of *one particular land *use known as?
a. district
b. dominant tenement
c. market
d. neighborhood
a. district
- An example of often permitted use with pass through zoning is.
a. Agricultural use of residential land
b. House in a commercial district
c. Industrial plant in a commercially zoned area
d. Office building in a residential neighborhood
b. House in a commercial district
- Which phase of a neighborhood is denoted by an area being refurbished with displacement of tenants?
a. decline
b. equilibrium
c. gentrification
d. growth
c. gentrification
- Contract Rent is what?
the tenants are actually paying in rent as stated in the terms of their lease.
- Market Rent is what?
the property could rent for on the open market if available.
- Potential Gross Income (PGI) is:
the total income that could be produced by a property in an ideal situation with no vacancies or losses.
- Effective gross income (EGI) is
the potential gross income, less vacancy and collection losses.
Net operating income (NOI) is:
the income after expenses.
- Operating expenses are:
day-to-day costs of operating a property, like repairs and maintenance, BUT NOT including debt service or depreciation. Mortgage not a part of
- Variable expenses are:
operating expenses necessary to the property, but dependent on the property’s occupancy level. (Management Fees)
- Overall capitalization rate is:
used to interpret a property’s single year net operating income to the property’s value using direct capitalization. IRV – Net Income/Rate = Value
- (GRM) Gross Rent Multiplier means:
monthly
(GMR) & (GIM) Gross Income multiplier =
12 mos..
- Overall Capitalization Rate is
used to interpret a properties single year (NOI) Net Operating Income to the property’s value using direct capitalization.
Direct capitalization (using an overall capitalization rate)
is an income method that converts a property’s single-year net operating income (NOI)Net Operating Income into a value indication by applying an overall capitalization rate.
- PEON Technique:
P: Potential Gross Income
E: Effective Gross Income
O: Operating Expenses
N: Net Operating Income
Then apply IRV formula.
- An investor pays $400,000 for an investment property. Potential gross income is $38,250. Vacancy and collection losses are established at 6.85% and expenses and reserves for replacement are 22.5%. What is the effective gross income?
a. $27,613.15
b. $27,214.88
c. $35,269.87
d. $35,629.88
d. $35,629.88
- Calculate the value of an apartment building using direct capitalization. EGI: $150,000; Monthly operating expenses: $2,000; Overall capitalization rate: 9%.
a. $1,134,000
b. $1,400,000
c. $1,644,444
d. $1,666,667
b. $1,400,000
- Reproduction cost is
the estimated cost of replicating the original building, using identical materials, workmanship, construction standards, size, layout, quality, and utility present in the current structure.
- Direct costs are
the costs in a project that are not variable, such as labor and materials. These are also referred to as hard costs. (Contractor’s Profit)
- Economic life is
the period, during the life of an improvement, over which the improvement contributes to the total property value and reflects all three of the forces of depreciation. During this time, the improvement contributes positively to the property value.
- Functional obsolescence is
when a building is less desirable because of something inherent in the design or nature of the structure (a Home with no heat source)
- Age-life method
estimates depreciation as a ratio of the effective age of improvements to the total economic life. This is also called economic age-life method.
- It has been a longtime standard within the appraisal profession that:
an appraiser NEVER averages his or her final value opinion
