Property Valuation Flashcards
Define Real Property
The land, anything attached to the land, and all the various rights associated with ownership of the land.
Real estate, realty, immovable property, and fixtures.
Examples:
- house
- Land
- Chandelier
- Oven
- Inground Pool
Land and Surface Right
Rights to land’s surfaces, extended approx. 30 feet below lands surface
Improvements on the Land
Improvements are anything permanently attached (directly or indirectly)
Examples:
- House Improvements
Fixtures such as:
- Window blinds attached to the house
Air Rights
Known as vertical rights, space above land
Solid Mineral Rights
Solid Minerals, examples like gold, granit
Liquid Right
Oil, gas etc.
In many states you don’t own liquid rights
-Own the rights to capture them under the doctrine of capture
Utilization pooling
Landowner owns a fraction of whatever mineral rights existing under their property
Property Value
What a buyer pays for
Appraisers
The people who estimate what buyers will pay for real estate; must have an appraisal license; real estate agents can only make comparative or competitive market analyzes
How appraiser estimates Real estate Value
- Appraiser defines rights, real estate being considered
- Preliminary survey ordered
- Completes a highest and best use analysis by collecting data and comparative properties
- Narrative for report is formed bia URAR, Fannie Mae/Freddy Mac
Value
How much a ready, willing an able buyer will pay for the property
D.U.ST.
The elements of value; factors that impact the appraiser estimate
Demand - The number of people that want to buy the property
Utility - Something’s usefulness
Supply - The more plentiful the less it’s worth
Transferability - Sellable real estate must be free from clouds on title
Change
A principle of value; real estate values are cyclical and change over time in response to the general economic climat
Anticipation
principal of value; benefit of property owner expect to receive oveer their lifetime of ownership
Substitution
Buyers will not pay more for something than they have to pay for a comparable good
Progression / regression
The increase (appreciation) or decrease (depreciation) in your property value due to substitution
Four Stage Lifecycle
Properties go through 4 stages
- growth
- stability
- decline
- revitalization
Balance
The notion that value is created and maintained when there is equilibrium among the amount and location of types of real estate
Contributions
a principal of value; additional investment of a property
Increasing and Decreasing Returns
a principle of value; Spending money to improve a property may not add value
Competition
a principal of value; profits attract competition, increase supply, drives prices down
Consistent Use
a principle of value; states that when improved land is in transition to a better use it can not be appraised
Cap Rate Math
NOI / Sales price = Cap Rate
Cash on Cash Return Math
cash flow/dollars invested = cash on cash return on investment
List the three ways for evaluating the value of a piece of real estate
- Sales Comparison Approach
- Income Approach
- Cost Approach
Sales Comparison Approach
- Most common appraisal method
- Appraiser looks at recent comparable sales and determines
the value of a property based on those sales - Midlife residential properties
- located in same area as subject property
- sold in the last 6 months
Income Approach
Used for investors looking at particular property
Cost Approach
Uses construction cost to estimate property value
used for buildings and improvements that lack adequate sales comparison data
Non-income driven property
Example: library, churches, etc.)
Income Approach Methods (Math)
- APOD - Annual Property Operating Data
- Gross Rent Multiplier
- Capitalization Rate
- Cash on Cash Return
Gross Rate Multiplier Define/Equation
calculates how many months of gross rent (before any expenses) it would take for a property to pay for itself
EQ: Sales Price / Gross Rent = GRM
Example Q: How much is a house renting for $1000 a month
worth if the average monthly GRM in an area is 200?
$1000X200=$200,000
Capitalization Rate (Cap Rate) Define/EQ
percentage of a property’s value an investor can expect to receive as net operating income (NOI)
EQ : NOI / SALES = CAP RATE
Q: How much is a property with an NOI of $10,000 worth if properties in the area have an average cap rate of 5%?
A: $10,000/.05 - $200,000
Cash on Cash Return (CoCORI)
The return on an investor’s cash investment in the property rather than the property’s total value.
EQ : Cash low / Dollars Invested = Cash on Cash Return on Investment
How can Real estate agents evaluate real estate?
Can only make comparative or competitive market analyses or brokers price opinino to determine listing prices
How do Appraisers do an estimate?
- Define rights, real estate, and definition of value that are being considered
- preliminary survey
- Data collected about the microeconomic data, specific info
- highest and best use analysis is determined
- Improvements on the land are value-based DUST
- Estimate is in narrative form or via Uniform Residential Appraisal Report (URAR)
List ways to define value of real estate
- Market Value
- Market Price
- Value - in - Use
- Cost
- Investment Value
- Insurae Value
- Assessed Value
- Liquidation Value
List the Influences on Property Value
- Social Trends -people’s wants/desire
- Economic - people’s ability to buy
- Government and Legal - what is legally land
- Environmental an Physical - location! Proximity to transportation etc.
List three ways to evaluate Real Estate
Sales comparison approach
Income Approach
Cost Approach
to delete
APOD Sheet terms
Gross Income Net Income Vacancy Operating Expenses Debt Services 'Capital Expenditures
Functional Obsolence
A loss of value due to pour design
Economic obsolence
Lose of value that is external factos such as loss of public transport, high foreclosure rates, etc.
