Property Value & Appraisals Flashcards
What is defined as the most probable price?
The Market Value
What is Market Value?
Price a seller will sell for and the price a willing buyer will pay
True or False: Appraised value is market value
True
What are the four Characteristics of Value:
- Demand
- Utility
- Scarcity
- Transferability
What is an opinion and estimate of Value?
An Appraisal
What does the accuracy of the appraisal depend on?
the integrity and competency of the appraiser and the availability of the needed information
What do appraisers use to help them arrive at their final opinion?
Principles of Value
What is the Highest and best use?
Use that gives the greatest return in money and is considered the most important detail by an appraiser.
What principle governs when the Maximum value of a property is set by the cost of similar surrounding substitute properties and is used to demonstrate the need to price correctly?
Principle of Substitution
What principle states that maximum value is found when properties are the same or have a degree of similarity?
Principle of Conformity
Increasing & Decreasing Returns are also known as
Law of Diminishing Returns
When each dollar invested will return a dollar or more of increased value and STOP when each dollar invested returns less than a dollar in value what principle is this ?
Law of Diminishing Returns
When value is determined by its contribution to the total value of the property vs the cost is?
Principle of Cotribution
Which principle states the presence of lower-valued or declining valued properties in the neighborhood leads to a decline in value of your property and vice versa if higher valued properties ?
Priciple of regression
True or False: Competition Lowers Price
True
Which principle states an increase of competition will result in decreased profits?
Principle of Competition
How long is an appraisal considered good for ?
6 months
Which principle states that change is Constant and is reflected in values?
Principle of change
Which principle states the purchase price is affected by the expectation of future appeal and benefits?
Principle of Anticipation
Which Principle states mixed land use should result in maximum value for ALL properties involved?
Principle of balance
If there is an increase in property value as a result of fixing a problem, then what concept has been applied?
Cost/value added
THE STEPS IN THE APPRAISAL PROCESS ARE:
1.State the purpose of the appraisal
2.Collect and verify information about the property.
3. Estimate value using three approaches
4. Reconciliation
FIRREA stands for
Financial Institutions Reform, Recovery, and Enforcement Act
Why was the Financial Institutions Reform, Recovery, and Enforcement Act passed ?
to regulate the appraisal industry nationwide and REQUIRES the use of a state-licensed or state-certified appraiser to perform any appraisal used in connection with a federally related transaction of property
What are the rules all Appraisers must adhere to ?
Uniform Standards of Professional Appraisal Practice (USPAP)
What are the three basic approaches to appraisal?
Market Data Approach, Cost and Income
where is the Market Data Approach used primarily?
esidential appraisals.
The appraiser should have _________ Arms Length Transactions (the Comparables) no more than ____________.
3-5 , 6 months old
Which approach is used for unique properties, such as churches or government buildings?
Costa Approcach
When there are no comparables for a particular property which approach is used?
Cost Approach
What would be the cost to exactly duplicate a building?
Reproduction Cost
What is the cost to build a building of similar size and usefulness using today’s methods and materials?
Replacement Cost
Which approach is used for income-producing properties ( if a property has rent)?
Income Approach
What are the 3 types of depreciation in the cost approach?
physical deterioration, functional obsolescence, and externalobsolescence
What is ordinary wear and tear and has the least impact on an appraisal because all buildings have it?
Physical Deterioration
When a property appraisal is reduced due to factors such as an unpopular floor plan or lack of modern updates, this is known as what type of depreciation?
Functional Obsolescence
When a loss of Value due to outside factors such as (zoning, air pollution, noise and traffic) this is what type of depreciation?
External Obsolescence
What is the Formula for Cost Approach?
Land Value + Building Reproduction Cost - Depreciation = Value
– OR –
Land Value + Building Replacement Cost - Depreciation = Value
When is the Income Approach typically used?
When there is rent and you are calculating the Net income
What is the Formula for Income Approach?
Net Annual Income
_________________________________________________
Cap Rate/Rate of Return | Market Value
(or you can use IRV)
Income = Rate x Value
What are the three Steps to calculate the Net Income:
- Calculate the Potential Gross Rent, the rent received if the building is 100% occupied.
- Calculate the Actual Gross Rent by deducting for vacancies and uncollected rents
- Subtract Expenses from Actual Gross Rent to receive the Net Annual Income
Income Approach Summary
Net Income = Gross Rent – Vacancy – Expenses
Why are investment properties generally purchased?
to provide income to the buyer
What helps an investor determine interest in a property?
Capitalization Rate
The Gross Rent Multiplier or GRM is based on what factors?
location and rent
How to determine a neighborhood GRM ?
Divide the average property price by the average monthly rent to get the Gross Rent Multiplier (GRM). Multiply the GRM by the monthly rent to estimate the property value. (GRM x Rent = Price)
What is the difference between GRM and GIM ?
GRM = Residential and based on monthly rent
GIM = commercial and based on annual rent
What is the GIM sometimes described as ?
“an appraisal tool with a yearly component in the calculation.”
What tool does a licensee use to help sellers determine a realistic price for their property by comparing the subject property to current listings, recent sales, and even expired listings?
CMA (AKA a Competitive Market Analysis)
True or False: a CMA is a range of values for a property rather than an exact price and is NOT an appraisal.
True
The list price is the __________responsibility, and the offering price is the ____________ responsibility.
Seller’s , Buyer’s
What is the same as an CMA but is a broker’s written opinion of value often requested by an attorney or a relocation company rather than by a principal to the transaction?
Broker’s Price Opinion (BPO)
True or False: a sales licensee can prepare a BPO in the broker’s name.
True
What is considered the value of your property for tax purposes?
Assessed Value
Where are the list of the assessed values for all the properties in a taxing district?
are found in the assessment rolls or online
what is often expressed as dollars per hundred of valuation?
Tax Rates
Which Tax rate is per thousand?
Mill Rate
When is Property Sales Tax paid, and by whom?
usually paid by the seller of real property at closing
What type of tax is placed If the local government is providing a benefit ONLY to those property owners who benefit from the improvement?
Special Assessment Tax
Property Sales Tax is based on the __________ of the property regardless of any profit or loss for the seller
Full Sale Price
When there is a real estate sale with an unpaid balance on a Special assessment who usually pays the tax?
The seller usually pays the special assessment but could be prorated at closing
What is a tax bill, similar to a special assessment but requires the person to pay the tax bill UNTIL the improvement is paid for or designation is removed?
Municipal Improvement District
What is the difference between replacement cost and market value?
Depreciation
What approach would an appraiser most likely use to value a residential rental house in a neighborhood where most of the homes are leased?
Income Approach
A licensed broker is advertising that he will perform a free appraisal if you contact him for a listing appointment. He is not in violation of the law:
If he is a licensed appraiser
A house was listed for $549,000 and sold for $545,000. The appraised value of the property was $542,000. What is the market value?
$542,000
What are the requirements/criteria for real estate to have value?
Demand, Utility, Scarcity, Transferability
What principle of value defines the most important factor for appraisal?
Highest and Best Use
Which of the following is NOT an example of functional obsolescence?
Deferred Maintenance
A buyer is interested in purchasing a home. He has a home inspection, and the inspector notifies the buyer that the house has 60 amp service. The inspector states that 100 amp service is usual and customary for a home of this size. This inspector has identified an example of…
Functional Obselecence
Which of the following is an example of economic obsolescence?
Air Polution
