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Real Estate > Property valuation in California > Flashcards

Property valuation in California Flashcards

1
Q

What is CMA

A

Real estate professional uses
Comparative market analysis for the CMA

Used to arrive at an appropriate list price or range for the property. The seller is trying to sell. The seller decides the list price and authorize you to market it at that price.

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2
Q

An estimate of market value based on recent comparable sales for similar properties

A

Comparative market analysis, CMA

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3
Q

Comparable

A

Recently sold real estate that can be used to determine the value of a similar piece of real estate

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4
Q

Market value

A

A price at which a willing buyer and willing seller can strike a deal given ordinary market conditions

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5
Q

Comparative market analysis, CMA

A
  • prepared by real estate agent
  • Prepared for the seller or buyer
  • Comparable property sales are used to determine the value, including properties, current on market, sold recently, and expired listings
  • The level of detail is basic to moderate
  • Price is an approximate range
  • The cost is free or minimal
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6
Q

Appraisal

A

An estimate of value as of a specific date in for a specific use performed by a state licensed or certified appraiser

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7
Q

Comparables

A

Property is used for comparison purposes when valuing property

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8
Q

Appraisal

A
  • prepared by a certified appraiser (with a few exceptions in some states)
  • Prepared for a lender, buyer, or seller
  • multiple methods are used to determine the value, particularly sales comparison and cost. Appraisers also use the income approach for income producing properties.
  • The appraisal is very detailed
  • Price is a fixed number
  • The cost is 400 or more, depending on the size of the property
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9
Q

What tool does the appraiser not use?

A

CMA
Comparative market analyst

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10
Q

Broker price opinion BPO

A

performed by a licensed appraiser Lenders frequently order a brokers price of opinion on foreclosure properties, or when determining appropriate market price for a short sale property . BPOs are estimates of price in case the lender must take over and sell the property.

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11
Q

Prepared for homeowners to sell the property
CMA
BPO

A

CMA

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12
Q

Emily uses a drive-by approach to the determine marketability and price
CMA
BPO

A

BPO

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13
Q

Commonly entails a tour by a licensee, a search on MLS, and a comparison of similar properties
CMA
BPO

A

CMA

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14
Q

The report and analysis provide a greater level of detail
CMA
BPO

A

CMA

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15
Q

Lenders request this for a foreclosure or short sale property
CMA
BPO

A

BPO

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16
Q

Article 11 the NAR code, FX about competence

A
  • identification of the subject property - date prepared - define value or price
  • The written conditions, including statements of purpose, and intended user
  • are any present or contemplative interest , including the possibility of representing the seller/landlord, or buyer/tenant
  • Basis for opinion, including applicable market data
  • If the opinion is not an appraisal, statement to the effect
  • disclosure of whether I want a physical inspection of the property interior was conducted
  • Disclosure of whether the realtor has any conflicts of interest
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17
Q

What two time frames are best for licensees to use recently sold properties CMA comparative market analysis

A

Three months or six months

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18
Q

Clark works for Wells Fargo bank and asks for your assistance. He wants you to look at a property that’s about to go into foreclosure and provide him with a report on its current market ability and an approximate market value. What’s Clark most likely asking you to provide?
Appraisal
BPO
CMA
Professional opinion

A

BPO

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19
Q

Which of the following features is most likely to be the cause of an adjustment to a comparable when preparing a CMA
Busy street
Color
demographics
Interest rates

A

Busy street

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20
Q

Which type of analysis is a broad estimate of price in case the lender must take over the property and sell it to an investor or on the market
Appraisal
Broker price opinion
Comparative market analysis
Credit analysis

A

Broker price opinion

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21
Q

Marcy’s offer on a home was excepted. Which Party will be contacting her about arranging an appraisal?
The closing attorney
The lender
The sellers agent
The title insurance, representative

A

The lender

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22
Q

What to do and bring to a listing presentation

A

presentation agree on house price so the clients don’t resent you for not getting their asking price, best to cut losses before it’s too late.
discussed listing price
Demonstrate knowledge of local market, CMA, comparable market analysis
Technology
- Pad or laptop demonstrating professionalism
- Copies of comparable properties, MLS listing sheets
- A hard copy of the CMA
- A copy of the marketing plan

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23
Q

What four things do you bring to a listing presentation?

A

CMA comparable market analysis
MLS listing sheets for comparable properties
Marketing plan
Listing contracts

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24
Q

Questions to ask at the first meeting to build your CMA
Comparative market analysis

A
  • have you done any recent upgrades?
  • Is there anything you’re planning to do to prepare the property for sale before you list?
  • When do you need to sell?
  • Do you know where you’re moving next?
  • Have you had a recent appraisal done? If so, what were the numbers?
  • Do you have a price range in mind that you need to get from the property?
  • What do you currently owe on the property?
  • Is there anyone else who will need to be involved in the decision to sell?
  • do you plan to move any furniture or other belongings before listing the property?
  • Will the pets be removed for the showings?
  • Questions about cleaners, house, painters, handyman, and stages that you can make available
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25
Q

CMA at the second meeting
Comparable market analysis

A
  • graph depicting trends in the area and then those pertaining to their neighborhood over the last few months
  • Four comparable properties photos shown in color, interior and exterior
  • Show price ranges and adjustments made based on the knowledge of the clients home and the final price range based on the numbers
  • Show any homes that have expired on the market after being listed higher price ranges
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26
Q

Defending the CMA
Comparative market analysis

A

Preparing a CMA is to determine the value of your home according to buyers. Buyers and their agents determined that value by comparing your home to recent sales in the area and other homes currently on the market. Buyers won’t pay more for a home then the market dictates. My goal is to get you the best price possible given the current market conditions. If we price it right, it will sell. If we priced too high, we will miss our market. The buyers will move elsewhere.

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27
Q

What questions you should ask the sellers

A
  • Why do you want to sell
  • What do you owe on the property?
  • Have you done any recent upgrades?
  • What can you tell me about the property?
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28
Q

Market conditions include things such as:

A
  • supply versus demand
  • Interest rates
  • Other economic factors
  • Demographics
  • Market timing
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29
Q

Interest rates and pricing pressure

A

Higher interest rates means fewer buyers can afford to buy, which will result in downward pricing pressure. Lower interest rates means more buyers can afford to buy, which will result in upward pricing pressure.

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30
Q

Employment and housing prices

A

Unemployment rates influences the number of buyers in the market.
High unemployment means fewer buyers can buy, which increase of high, and decreases housing prices.

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31
Q

Taxes and home prices

A

Taxes are another factor that can affect housing prices.
Lower taxes increase buying power, supporting higher home prices. Higher taxes, decrease buying power, supporting, lower home prices.

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32
Q

Supply outweighs, demand, and market prices
Lower prices
Higher prices

A

Lower prices

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33
Q

Demand outweighs supply in market
Lower prices
Higher prices

A

Higher prices

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34
Q

High consumer confidence and seller, motivation, and price
Lower prices
Higher prices

A

Higher prices

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35
Q

Shaky, consumer confidence, and seller and prices and market conditions
Lower prices
Higher prices

A

Lower prices

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36
Q

Seller motivated to move quickly
Lower prices
Higher prices

A

Lower prices to sell quickly

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37
Q

What happens when you over priced a property?

A

Languishes on market
Misses the market
Brings in lowball offers

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38
Q

The appraisal sale price doesn’t match

A
  • cancel the transaction and provide the buyer with a refund of earnest money, if Appraisal contingency is part of the agreement
  • Reduce the sales price to be in line with Appraisal
  • The buyer could increase the down payment amount to make up for the difference between the sales price and appraised value
  • The buyer and seller could meet in the middle
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39
Q

If a client is preapproved for a loan of 100,000 but found a price of a house for 60,000 they like, the appraiser, however, value the cottage at 80,000. For what amount will the lender approve a loan?
- 60,000
- 80,000
- 100,000

A

60,000 although the cottage appraise for more than the sale price, the lender would approve the loan for the lesser of the two, the sale price

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40
Q

Your clients are preapproved for 100,000 loan. After weeks of looking, they found a home and made an offer at 80,000. The sellers agree to this price. A short time later, the lender had an appraisal done which came back with the value of $60,000. what about all the lender approve the loan?
$60,000
$80,000
$100,000

A

$60,000 the appraiser value of the property for $60,000. This is the amount of lender will most likely approve.

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41
Q

Options when homes appraise for less

A
  • The buyer and seller could meet in the middle
  • The buyer could increase the down payment to make up the difference
  • the seller could reduce the sale price
  • The buyer could cancel the transaction (if an appraisal contingency is part of the agreement)
  • The agent could challenge the appraisal
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42
Q

After you made a professional listing presentation, and the seller has declined to use you as a listing agent, what’s the best practice?
- You should except the outcome either way
- You should ask the sellers for a second chance
- You should call the competing sales person to discuss the matter
- You should pursue the sellers with questions about their decision, even if they tell you they don’t wanna talk about it

A

You should except the outcome either way. It’s appropriate to ask the seller what you could’ve done differently to earn their business, this can help you with your Next listing presentation

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43
Q

Why is it so important to properly price of a property when it first enters the market?
- If a property is over, price from the beginning, the chances of the property selling or not impacted significantly
- Overpricing a property will drive up price of other properties as well causing a false inflation
- The first several months are crucial because they’re the best chance for the property to sell
- The first several weeks are crucial because they are the best chance of property this sell

A

And the first several weeks are crucial because they’re the best chance for the property to sell.

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44
Q

What are some ways you can make sure your pricing a property at fair market value?

A

Prepare a well searched CMA
Comparative market analysis

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45
Q

At a listing appointment, licensee chat, ask Sam, the seller, if the property is his own home or is it an investment property. Why would chat asked this?

A

If the home is his own, he’s likely to be purchasing a new one, so chat has a chance to earn two transactions

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46
Q

Supply and demand determine competition within a market. What is an example?

A

When there are fewer houses on the market, sellers can demand more for their properties

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47
Q

Why might a licensee want to make two visits to the property as part of a listing presentation?

A

To use information from a tour to prepare the CMA for the second tour

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48
Q

When market conditions indicate top of the market pricing, is it always in your clients best interest to sell at that price

A

No, it’s still has to appraise

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49
Q

What is a consequence of overpricing a property?

A

The property won’t approve hence you could lose the contract if you don’t get an offer

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50
Q

Certified formal appraisal
A.k.a. valuation

A

An estimate of value an Appraisal

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51
Q

Market value

A

A price at which a willing buyer and willing seller can strike a deal given ordinary market conditions

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52
Q

Value in use

A

The worth of a property as the owner is currently using it.

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53
Q

Assessed value

A

The dollar amount to which the local tax rate is multiplied to determine property tax owed. Typically that 80 to 90% of the market value, the tax jurisdiction, then uses that value to calculate the property taxes. Property is usually assessed on a regular two years to ensure the values of current appraisers look at the assessed value but it’s not a big part in appraisal process

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54
Q

Evaluation

A

A usability study that does not include or referred to an opinion of value, just mark ability, study, or land you study to evaluate with no value in the end

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55
Q

Usually hired by the buyer or seller

A

Real estate professional

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56
Q

Usually hired by the lender or buyer, or sometimes the seller

A

Appraiser

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57
Q

Determines a property is worth

A

Appraiser

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58
Q

Provide an estimate of value that may be influenced by the consumer

A

Real estate professional

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59
Q

Provides an unbaised estimate of value

A

Appraiser

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60
Q

Price at which the property can be alone or sold at a foreclosure sale
Mortgage value
Investment value
Insured value

A

Mortgage value

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61
Q

A great importance to the lender
- Mortgage value
- Investment value
- Insured value

A

Mortgage value

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62
Q

Return on investment property may provide
- Mortgage value
- Investment value
- Insured value

A

Investment value

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63
Q

Cost to replace or rebuild a property
- Mortgage value
- Investment value
- Insured value

A

Insured value

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64
Q

Value of importance to insurance companies

A

Insurance value

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65
Q

Neither the buyer, nor the seller is being forced into agreement with the fair market value
Implied
Not implied

A

Implied

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66
Q

The buyer or the seller are acting in their own interest in a fair market value
Implied
Not implied

A

Implied

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67
Q

The property has reasonable exposure to the market and a fair market value
Implied not implied

A

Implied

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68
Q

The buyer and seller are related in a fair market value
Implied
Not implied

A

Not implied

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69
Q

The buyer is using cash or obtaining financing and a fair market value
Implied
Not implied

A

Implied

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70
Q

The price at which a willing buyer, and a willing seller with strike a deal, given normal market conditions

A

Market value

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71
Q

The price a property is worth to its current owner as currently enjoyed

A

Value in use

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72
Q

An opinion of value using totally objective criteria

A

Valuation, Appraisal

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73
Q

A study of a property that does not necessarily return a price or value

A

Evaluation

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74
Q

The cost of replacing a building in case of a total loss

A

Insured value

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75
Q

The return of funds invested

A

Investment value

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76
Q

The price of a lender believe the property will bring at a foreclosure sale

A

Mortgage value

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77
Q

CMA

A
  • Commonly no charge (state me allowed licensee to charge fees)
  • Performed by a real estate agent
  • Comparable sales method used
  • basic to moderate level of detail
  • Prepared for a seller or buyer
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78
Q

BPO

A

Minimal cost ($50 -$200), which must be paid to the licensee’s broker
performed by a real estate licensee
Comparable sales method used
Basic to moderate level of detail
Prepared for a lender (in a foreclosure or short sale situation) or a relocation of company

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79
Q

Appraisal

A

Cost $400 +
Performed by a state licensed or certified appraiser
Multiple methods of performing the appraisal are used, including sales comparison, and cost. Appraisers may also use the income approach for income producing properties.
Very detailed
Prepared for the lender, buyer, seller, or sometimes the courts

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80
Q

Comparative market analysis, CMA

A

Unbiased estimate or opinion of the market value of real property by a real estate licensee who isn’t a licensed or certified appraiser

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81
Q

Brokers price opinion, BPO

A

Usually ordered by a lender in a foreclosure situation. They don’t want to shell out money for a full appraisal, so they’ll hire some real estate broker to give them an opinion of price.

Basically, it’s a CMA with a different name for a different purpose. Like a relocation company will ask for a BPO.

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82
Q

USPAP
uniform standards of professional Appraisal practice

A

State the problem
Identify data needed
Gather and analyze data
Determine highest best use
Estimate value of land
Use three approaches to estimate property value
Reconcile values to determine final appraisal value
Report appraisal value

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83
Q

As an appraiser, what are two benefits of stating the problem upfront?

A

Informs appraiser’s approach.
It helps the appraiser identify the type of data required

84
Q

Steps for appraisal process

A

State the problem
Identify data needed
Gather and analyze data
Determine highest and best use
Estimate value of land
Use three approaches to estimate property value
Reconcile Val used to determine final appraisal value

85
Q

Price

A

What a buyer has paid for the property and what the seller has excepted

86
Q

Value

A

What a property is worth

87
Q

Cost

A

What it would cost to re-create that property if it disappeared off the face of the Earth today a.k.a. labor, materials, legal services, zoning, architectural, design, financing, taxes, interest, overhead, profit all that.

Direct cost/hard costs - labor and materials

Indirect costs- fees and administrative costs

88
Q

DUST

A

D - demand
U- utility
S- scarcity
T- transferability

89
Q

Demand

A

How attractive and move in ready is the property

What’s the market like?

Are there more buyers and sellers or vice versa?

90
Q

Utility

A

Properties function

Is it habitable?

Does it need updating Call me repairs?

Does the current zoning match the intended use?

For commercial zoning, this impacts the value if the zoning does not work

91
Q

Scarcity

A

Demand

Fewer properties there are on the market, the greater the scarcity, The higher the demand

High demand pushes prices upward

92
Q

Transferability

A

Can we transfer to another property hasn’t been used for a dumping ground such as tires. There’s no cloud on the title that will impact the value.

93
Q

Principles of value

A

Anticipation - value of property based on income that is expected to be received in the future
Competition - less competition increases demand, and drives pricing upward
Conformity - call Priti conform to the demands of the market
Contribution - a change in property impacts the value as a whole a.k.a. garage into room does that detract from value? That’s up to the buyer.
Highest and best use - legal and economically feasible that’s most profitable
Plottage - land parcels increase the property value
Regression - higher quality property loses by being mirror, a lower quality property
Progression - gains by being there, a higher quality property next-door to a remodeled home representing progression in the neighborhood
Substitution - determined by the cost of a similar substitute property

94
Q

What, for external forces influence a properties value

A

Environmental
Social
Political
Economic

95
Q

Big properties value is dropping because the neighboring properties yard is filled with trash. What is this an example of
Depreciation
Progression
Regression
Substitution

A

Regression

96
Q

What’s another term for a valuation that is an unbiased opinion of value?
Assignment
Comparative market analysis
Evaluation
Formal appraisal

A

Formal appraisal
Another term for evaluation is a formal Appraisal. This is a professional appraisers unbiased opinion of value.

97
Q

Identifying the purpose of appraisal leads the appraiser to what next?
Determine highest and best use
Estimate value of land
Identify data needed
Use three approaches to estimate value

A

Identify data needed

98
Q

Mary Ann is looking for the potential rate of return. What sort of value is she interested in?
Assessed value
Investment value
Market value
Value in use

A

Investment value

99
Q

While market value is an opinion of property is worth on the fair market, which of the following best describes market price?
How much a buyer has paid and a seller has accepted for the property
How much an appraiser estimated property is worth on a given day
How much a lender would be willing to finance for the property
How much it would take to rebuild a property from scratch, including the cost of land

A

How much a buyer has paid and a seller has excepted for the property

Market price is the amount that the buyer paid and what the seller accepted for the property

100
Q

What does Susanna do as an appraiser?

She provides an estimate of value that consumer may influence
She provides an unbiased estimate of value
She’s usually hired by the buyer seller

A

She provides an unbiased estimate the value

Appraisers determine the properties worth or value

101
Q

Margo has fallen in love with a three bedroom, 2500 square-foot property and her friends neighborhood. It’s listed for $400,000. However, just down the street, another three bedroom, 2400 square-foot home very similar to the one Margo loves was just listed for $350,000. Margo and her agent immediately make an offer on the second property. Which economic principle is at work here?
Anticipation
Conformity
Progression
Substitution

A

Substitution

102
Q

Which economic principle is related to supply and demand?
Competition
Conformity
Contribution
substitution

A

Competition

103
Q

Jerry is appraising a five bedroom home in the suburbs. After identifying the purpose of the appraisal, what does he need to do next?
- Determine the highest and best use
- Estimate the value of the land
- Identify the data that is needed
- Use the three approaches to estimate the value

A

Identify the data that is needed

104
Q

What two types of data does the appraiser gather?
- Computer and hand written
- General and specific
- Old or new
- Related and non-related

A

General and specific

105
Q

The Richards family Farm is located on a 10 acre parcel of land, which is very rare in their area. However, the house is rundown and need of many repairs. Most buyers in the area are looking for a move-in ready home, which means they would need either Look elsewhere or wait several months for the home to be renovated. Which factor is most negatively impacting the value of the Richards property?
- Demand
- scarcity
- Transferability
- Utility

A

Utility

106
Q

Interest rates, availability of credit, and employment. Trends are example of which force that influences property value?
- Economic
- Physical/environmental
- Political/governmental
- Social

A
  • Economic
107
Q

A fire destroyed Merida’s house Meredith contacted her insurance company, and she was shocked to learn her insurance policy didn’t fully cover what she paid for the property. How does the insurance company determine the replacement value of her home?
- It’s current market value
- The amount for which it was appraised
- The amount it would cost to completely replace her home
- The original sales price when it was first constructed

A

The amount it would cost to completely replace her home

Insurance companies, reimbursed based on a properties replacement cost, or what it would cost to re-create that property if it had to be completely rebuilt

108
Q

There are a lot more sellers than buyers in the current market. How does this demand influence value?
- Demand doesn’t influence value
- Value is push downward
- value is pushed upward
- Value remains the same

A

Value is pushed downward

109
Q

What’s the price at which a willing buyer and a willing seller would strike a deal given normal market conditions?
- Insured value
- Market value
- Valuation
- Value in use

A

Market value

110
Q

Trudy loved her new neighbors. The investor couple bought every available house on Trudy’s block and was working hard to renovate them and increase their value. Judy decided that she said that, relax, and let her properties value go up, too, thanks to———-?
- Competition
- Progression
- Regression
- Substitution

A

Progression

111
Q

Substitution

A

The principle that a properties value is determined by what it would cost to purchase a similar substitute property

112
Q

The process of comparison and appraisal

A

The appraiser follow the steps:
- Analyze the subject property to identify its characteristics particularly demand in current market
- Identify comparable properties, a.k.a. comps that have been recently sold, and are at similar to the subject property as possible (can’t compare under contract as a comp)
- Compare the comparables to the subject property and make adjustments to the sales price of the comparable where they are different
- Use the data to arrive at an opinion of value for the subject property on the data appraisal

113
Q

Finding comparable properties

A

Elements of comparison - comparables location, dates of sale, physical property, characteristics, terms, and conditions of the sales transactions

Units of comparison - allow the comparison to be standardized. Units may be price per square foot, per apartment unit per acre etc..

114
Q

Questions that test comparability

A
  • is the subject property held in fee simple interest, will transaction be for fee simple estate? Is the comparables also fee simple?
  • Is the subject property subject to easement or encroachment, such as neighbors fence overlapping the property boundary?
  • Are there any deed, easement, or leasehold restrictions?
  • What is the comparable sold with advantageous financing or as distressed property?
  • What is the comparable cell executed at arms length? Or between relative under any dress such as for sale before bankruptcy?
  • Who is any personal property included in the sale price the attached spa boat included with the lakefront property
115
Q

An appraisers adjustment, superior comparable

A

If the comparable property is Superior, it’s known as a superior comparable

Two car garage compared to one , car garage

116
Q

An appraisers adjustment inferior comparable

A

If the comparable property is in inferior is known as inferior comparable

The yard is not well-maintained by the comparable property is beautifully landscaped

117
Q

Applying elements of comparison in Appraisal

A

financing terms in cash equivalency - offered by builders for new construction or seller concessions in resale transactions
Conditions to sale - arms length transaction, personal items, included, fixtures included?
Market conditions - hot or cold market time of contract closing
Location - appraisers support decision with written, detailed explanation demonstrating local expertise
Physical characteristics - site, view, construction, quality, amenities, size, etc.

118
Q

Appraisal drive-by

A

Evidence of foundation, shifting, worn out roof, superior, inferior view, traffic, or other nuisances, such as airport noise. Adjustments will be made to comparables for these items

119
Q

Bracketing

A

Determines a probable range of property values by comparing a group of comparable sales to the subject

Example, the appraiser attempts to include both Superior and Theory are units of comparison, such as age and transaction price

120
Q

What does the sales comparison approach rely upon?

A

Value of similar properties in the market

121
Q

Comparison approach steps

A
  • Analyze the subject property first, when using the comparison approach
  • identify some comparable properties that have been recently sold.
  • give an opinion of value for the subject property on the date of the appraisal
122
Q

Elements of comparison in order

A
  • financing terms and cash equivalency
  • Conditions of sale
  • Market conditions
  • Location
  • Physical characteristics
123
Q

What are factors appraisers need to consider when finding property comparables to the subject property?

A

Property interest, and rights
Physical characteristics of the property

124
Q

The appraisal cost approach

A

Involves combining separate estimates of value for the building, and the land to get the estimate value of the entire improve property.

Measure value as a cost of production, including land, and construction costs

Reliability depends on valid reproduction costs, and appropriate depreciation estimate

125
Q

Reproduction costs

A

The construction cost at the current price point that will necessary to exactly reproduce existing improvements to the property

126
Q

Depreciation

A

Lost in property value from any cause

127
Q

The cost approach

A
  • New construction, both residential and commercial property
  • Unique properties, such as high, efficient, houses, residential acreage, with excess land, historic houses, high dollar houses with more amenities
  • Special purpose commercial uses, such as hospitals, manufacturing plants, hotels, schools, houses, worship, single purpose properties.

Not used in condominium and cooperative properties and isn’t used often with older properties.

128
Q

Replacement cost/replacement cost new

A

The construction cost at current prices to replace a property that won’t be an exact duplicate, but serve the same purpose or function as the original

129
Q

Three types of depreciation considered

A
  • Physical deprecation a Los in value caused by deterioration and physical condition
  • functional obsolescence a loss in value caused by defects and design. Poor floor plan, inconvenient rooms, bedroom on a level without baths.
  • External depreciation or economic, obsolescence, lost the value, undesirable, hazardous influence, offsite traffic area, industrial odors, airport, noise.
130
Q

Curable depreciation

A

Item that can be repaired or replaced to increase the properties value after item is cured. This includes deferred maintenance, painting, repairs, repairing faucets, reasonable, and economically feasible.

131
Q

Incurable depreciation

A

Not practical to correct examples, a furnace, a roof that has reached its end of economic life

132
Q

Comparative square foot or unit method

A

Appraiser estimates by taking the cost per square foot of a recently built comparable structure and applying that cost per square foot to the subject property.

133
Q

Site value

A

Example
$25,000 site value + $100,000 replacement cost -$10,000 incurable depreciation -$2000 curable depreciation = $113,000 estimated value

134
Q

What does the cost appraisal approach measure?
- Income the property could generate
- Cost to rebuild the property
- Value of similar properties in the market

A

Cost to rebuild the property

135
Q

What would an appraiser most likely use cost approach for

A

Movie theater
Winery and Vineyard
Newly constructed home
$10 million property

136
Q

Assumes the land is bacon and bases opinion on highest and best use
- Reproduction cost
- Site value
- Replacement cost

A

Site value

137
Q

Cost to build an exact replica of the subject with the same materials and deficiencies
- Reproduction cost
- Site value
- Replacement cost

A

Reproduction cost

138
Q

Reflects the cost to build a functionally equivalent improvement
- Reproduction cost
- Site value
- Replacement cost

A

Replacement cost

139
Q

Improper maintenance of property
- Physical deterioration
- Functional obsolescence
- External depreciation

A

Physical deterioration

140
Q

Houses over built for the area
- Physical deterioration
- Functional obsolescence
- External depreciation

A

Functional obsolescence

141
Q

Airport noise
- Physical deterioration
- Functional obsolescence
- External depreciation

A

External depreciation

142
Q

Income approach to appraising property

A

An approach determining value used for investment properties based on income, it will produce

Seldomly used for owner occupied, single-family residential

Mainly used for commercial buildings and multi family residential

143
Q

Gross rent multiplier

A

Using Appraisal, income approach, - figure used as a multiplier of gross monthly rent of property used to estimate property value for properties of 1 to 4 units

The GRM = price divided by gross rent
Monthly gross rent of $10,000 for it’s for large units were sold for $1.5 million
GRM = $1,500,000 divided 10,000 GRM for this comp property is 150

If you are buying take the value = rental income x GRM
$8000 x 150 = $1.2 million that is the approximate value

144
Q

Direct capitalization

A

Convert a single year’s expected income (or annual average) into a market value

Example Bernie’s investor Client always wanted to see direct, capitalization and healed capitalization on properties before she bought them to make sure the pay off for her

145
Q

Net, operating income NOI

A

Income projected after deducting losses for vacancy, collection, loss, and operating expenses

146
Q

Capitalization rate

A

Also called cap rate

Are the expected rate of return on investment and measures the risk of an investment. The higher, the cap rate, the higher, the risk rate. The cap rate and the market value are inversely related, which means that when one goes at the other goes down and vice versa.

The return or investment, that other investors in a given market place are receiving for a similar property, expresses the income, a real estate investment produces as a percentage of its price

R(cap rate) = I (net operating income ) divided V( property value)

147
Q

NOI = gross income - losses - expenses

A

Gross income $90,000 subtract the operating cost $15,000 equals $75,000
To calculate the NOI, take the gross income, subtract the operating costs
Value property/listing price is $1 million. Your equation is. R = $75,000 divided by1,000,000 R = 0.075 or 7.5%.

Or you can find the operating income (I) by using R x V = I

148
Q

Yield capitalization

A

Often used for larger properties where the investor wants to value based on long-term holdings effect of debt repayment and potential resell a property on the ultimate return on investment

149
Q

What does the income approach analyze
- Income the property could generate
- Cost to rebuild a property
- Value of similar properties in the market

A

Income the property could generate, the ability to earn future income

150
Q

Capitalization methods of income approach is gross income, rather than net income, in their assessment of value
True or false

A

False

151
Q

Caliber is a factor that shows the income of a property produces, in relation to its price
True or false

A

True

152
Q

The current value of an income property can be determined by using estimate of future income
true or false

A

True
It’s basis of the income approach

153
Q

GIM is appropriate for finding the value of a single-family home purchased as a rental property
True or false

A

Falls
Appropriate for properties that have income in addition to rent

154
Q

Calculate the projected net, operating income for a property over the next year, then apply a capitalization rate

A

Direct capitalization

155
Q

Divide the sales price of a comparable property by its gross rental income. Use the result on the subject property determine a value.
- Yield capitalization
- Direct capitalization
- Gross rent multiplier
- Gross income multiplier

A

Gross rent multiplier

156
Q

Calculate the projected net, operating income for a property over the next year, then apply a capitalization rate
- Yield capitalization
- Direct capitalization
- Gross rent multiplier
- Gross income multiplier

A

Direct capitalization
Uses of formula derived from the next year’s, projected net operating income

157
Q

Play an expected rate of return to income from the entire holding. To find the current property value.
- Yield capitalization
- Direct capitalization
- Gross rent multiplier
- Gross income multiplier

A

Yield capitalization
Derives the value from income over the entire holding period of the property

158
Q

GRM gross rent multiplier

A

Appropriate way of estimated value for a one to four family residential properties

159
Q

GIM gross income multiplier

A

Used for a residential income property that has five or more units and income from sources other than rent

160
Q

Your client is purchasing a duplex and plans to live in 1/2 while renting out the other half
- Gross rent multiplier
- Gross income multiplier

A

Gross rent multiplier

161
Q

Your client is investing in a six unit apartment building with laundry facilities, and a vending machine
- Gross rent multiplier
- Gross income multiplier

A

Gross income multiplier

162
Q

Your client is considering investing in a three unit, residential income property
- Gross rent multiplier
- Gross income multiplier

A

Gross rent multiplier

163
Q

Your client wants a value estimate for a 15 unit apartment building
- Gross rent multiplier
- Gross income multiplier

A

Gross income multiplier

164
Q

The value principle of ——- is the basis of the income approach to Appraisal
- Anticipation
- Capitalization
- Competition
- Substitution

A

Anticipation
Income approaches to appraisal are based on defining the present value of future income

165
Q

In the sales comparison approach, using comparables that are five and 15 years old when appraising a subject that is 10 years old is an example of what?
- Bracketing
- Bridging
- Substituting
- Surrounding

A

Bracketing

166
Q

What does the income approach to value rely on when valuing properties that are five or more units?
- Gross income multiplier
- Gross rent multiplier
- Monthly gross net
- sales comparison

A

Gross income multiplier

167
Q

A poor floor plan is an example of which type of depreciation
- External depreciation
- Function obsolescence
- Incurable depreciation
- Physical depreciation

A

Functional obsolescence

168
Q

When you’re using the sales comparison approach to value a property, which of the following is considered a category of adjustment?
- Area demographics
- Financing terms and cash equivalency
- Seller motivation
- Types obsolescence

A

Financing terms and cash equivalency
Categories of adjustments include financing terms and cash, equivalency, conditions of sale, market conditions at time of contract and closing, location, and physical characteristics

169
Q

Burt owns a development company that specializes in constructing you, energy-efficient houses. The best approach for an appraiser to use in the appraisal of Bert’s newly built home——
- Appraisal process
- Cost approach
- Income approach
Sales comparison approach

A

Cost approach
Is the best method to determine the cost of acquiring the land and constructing the homes

170
Q

Nearby industrial odor is an example of what type of depreciation

A

External depreciation

171
Q

A strip mall valued at $850,000 has a 67,500 annual net operating income. What is the capitalization rate for the strip mall

A

7.9%
Take 67,500 and divided by $850,000 it comes up 0.0794 equals 7.9%

172
Q

The loss in value caused by deterioration in physical condition is called

A

Physical depreciation

173
Q

To make valid computations of adjustments, for the sales comparison, approach to value, elements of comparison must be applied in specific order. Which of these elements is a pied last
- Conditions of sale
- Location
- Market conditions
- Physical characteristics

A

Physical characteristics

174
Q

The GRM for Sunny Hills is 147. If a three bedroom one bath house in Sunnyhills rent for 820 monthly and sold for $125,000, what is the suggested value of the house that leases for $1000 monthly based on the GRM

A

$147,000
Refer to notes on how to get GRM

175
Q

The economic principle of——— says that when there are two houses in the same neighborhood with the same size, and utility, the lower priced one will tend to sell first-
- Correlation
- Substitution
- Supply and demand
- Underpinning

A

Substitution

176
Q

A Los in value caused by an undesirable or hazardous influence offsite is which type of depreciation

A

External depreciation

177
Q

Which of the following best defines capitalization rate?
- The expected rate of return on investment
- The rate at which assets depreciate overtime
- The rate of capital rapture
- the value of a business as an investment

A

The expected rate of return on investment

178
Q

Giant industries has a 674,223 gross operating income, operating expenses of $329,129 and other expenses totaling $38,719. What is the net operating income

A

$345,103
The formula for finding net operating income is :
Gross income - operating expenses =‘s net operating income
$674,232 - $ $329,129 equals $345,103
Other expenses like loan interest in debt, repayment are included in this calculation

Study this

179
Q

What’s the capitalization formula used in the income approach

A

Value =net, operating income, divided by cap rate

180
Q

Transactions for sale, lease, purchase, investment, re-financing, or exchange of real property in which a federal, financial agency or regulatory authority is involved.

A

Federally related transaction

181
Q

VA loan

A

A loan that is guaranteed. A mortgage offer through US department of Veterans Affairs program.

182
Q

FHA loan

A

Insured by the federal government. A government back mortgage insured by the federal housing administration

183
Q

The Appraisal foundation

A

National organization comprised of representatives of major appraisal, organizations, and those related industries

184
Q

Financial institutions, reform, recovery, and enforcement act of 1989
(FIRREA)

A

Requires that federally related appraisals, be conducted by a state, licensed or certified appraiser.

Must conform to federal requirements and criteria by the appraisal, foundations, appraiser qualifications board.

185
Q

Federally related transactions

A

Related transactions, and one in which the phone won’t be sold on the secondary market and isn’t guaranteed or insured by the federal government

186
Q

Sale or lease of residential property
- Federally related transaction
- Not a federally related transaction
- Could be either

A

Could be either

187
Q

Investment property sell involving a federal financing agency
- Federally related transaction
- Not a federally related transaction

A

Federally related transaction

188
Q

Residential FHA or VA transaction
- Federally related transaction
- Not a federally related transaction
- could be either

A

Not a federally related transaction

189
Q

Residential conventional loan that will be sold to Fannie Mae
- Federally related transaction
- Not a federally related transaction
- Could be either

A

Not a federally related transaction

190
Q

FIRREA pause requirements related to appraisal of federally related transactions. What does the FIRREA require?

A

Federally related appraisals must be conducted by an appraiser who’s either licensed or certified appraiser

191
Q

Certain properties are exempt from federal appraisal guidelines. Which are exempt involving federal, financial, or regulatory agency.

A

Federal guidelines, apply to financing, refinancing, and the use of real property as security for a loan when a property is valued above $400,000. If the property value is 400,000 or less, it’s exempt from federal appraisal requirements.

192
Q

What are USPAP requirements for appraisals to include on appraisal report

A

Description of the real estate being appraised
The purpose and intended use of Appraisal
The volume to be estimated
The effective date of Appraisal and the date of report
All assumptions and limiting conditions that impact the analysis, opinions, conclusions
The data collection process

193
Q

Types of appraisal reports

A

restricted appraisal report contains minimal detail, prepared for a specific client for an explicit limited purpose does not satisfy lenders and institutions. Snapshot of the property basically a form with check marks

appraisal report most often used with detail and satisfies needs for lenders and large institutions allows time to analyze a property from many angles. More time consuming, more costly, clear and accurate, contain sufficient information, disclose all assumptions conditions, and limiting conditions.

Both must be in writing

194
Q

Appraiser that has 150 hours of education

A

Trainee icensee, and residential licensee

Trainee license he has no requirements of experience

Residential license he has 2000 hours over at least 12 months experience minimum

195
Q

Real estate appraiser with 200 hours of education

A

Certified residential

Experience requirements are 2500 hours over at least 30 months

196
Q

Real estate appraiser with 300 hours of education

A

Certified general

Experience, minimum 3000 hours, 1500 non-residential, over at least 30 months minimum

197
Q

General appraiser

A

Can appraise any residential or non-residential property, regardless of value or complexity

198
Q

Certified residential appraiser

A

Can appraise any residential property, regardless of value or complexity, but only non-residential properties valued up to $250,000

199
Q

Residential license for Appraisal

A

Can only appraise 1 to 4 unit residential properties valued up to 1 million and are not complex in nature. They can also appraise non-residential properties valued up to $250,000.

200
Q

Licenses may ask appraisers:

A
  • consider additional, appropriate property information.
  • Provide further detail, substantiation, explanation for the appraisers value conclusion
  • Correct errors in the appraisal report
  • ask appraiser to consider additional appropriate information about the property
  • Ask appraiser to correct errors in the appraisal report
  • Providing further details or explanation for the appraisers value conclusion
201
Q

Other DRE requirements related to appraisals are as follows:

A
  • lenders must promptly provide borrowers with a copy of the appraisal report, and no less than three days prior to closing
  • Advanced Appraisal fees received by the real estate brokers must be treated as a trust funds and handled accordingly
  • Real estate brokers cannot profit from, or markup, fees paid for an appraisal
202
Q

Which of the following properties is exempt from the FIRREA federal appraisal guidelines?
- A refinance of a property valued at $375,000
- A refinance of a property valued at $475,000
- the purchase of a property valued at $455,000
- the purchase of a property valued at $475,000

A

A refinance of a property valued at $375,000

203
Q

What entity sets the standards for the appraisal report?
- Appraisal ethics association
- FIRREA
- State real estate license law
- USPAP

A

USPAP

204
Q

Which category of appraiser can appraise any residential property without any limitations related to value or complexity, but only non-residential properties value below $250,000?
- Certified general appraiser
- Certified residential appraiser
- Residential license
- Trainee license

A

Certified residential appraiser

205
Q

Which type of appraisal report makes use of pre-printed documents?
- Form report
- Letter report
- Narrative report
- Printed report

A

Form report

Real Estate (39 decks)

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