Real Estate Appraisal Flashcards
opinion of value based on supportable evidence
Appraisal
sets minimum education and experience requirements for licensing or certification
Appraiser Qualifications Board
Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting.
Uniform Residential Appraisal Report (URAR)
a report by a real estate professional of market statistics, but it is not an appraisal.
comparative market analysis (CMA)
may be used in transactions involving home equity lines, refinancing, portfolio management, loss mitigation, and collections.
Broker Price Opinion
Value is created by
demand, utility, scarcity, and transferability of property (DUST)
most probable price that property should bring in a fair sale, but not necessarily the same as the price asked or paid or the cost to construct.
Market Value
basic principles of value
Anticipation Conformity Competition Change Contribution
A property’s highest and best use
Physically possible, legally permitted, financially feasible, most profitable, maximally productive
is in evidence when additional property improvements no longer bring a comparable increase in property value.
Law of increasing and diminishing returns
assemblage
process when two or more parcels of land are combined
when a property’s value is enhanced because of more valuable properties in the vicinity
progression
in effect when a property’s value is lower because of less valuable properties in the vicinity.
regression
dictates that prices will rise when demand is high relative to supply, and prices will fall when supply is high relative to demand.
supply and demand
makes use of sales of properties comparable to the property that is the subject of the appraisal by adding or subtracting from the sales price of each comp the value of a feature present or absent in the subject property versus the comparable.
sales comparison approach (market data approach)
uses the current cost of constructing building and other property improvements and an estimate of accrued depreciation using the straight-line method (economic age-life method), or an estimate of individual items of physical deterioration, functional obsolescence, or external obsolescence.
the cost approach
income approach
- Estimating annual potential gross income
- Deducting an allowance for vacancy and rent loss to find effective gross income
- Deducting annual operating expenses to find net operating income (NOI)
- Estimating the rate of return (capitalization rate or cap rate) for the subject by analyzing cap rates of similar properties
- Deriving an estimate of the subject’s market value by applying the cap rate to the property’s annual NOI using this formula: net operating income ÷ capitalization rate = value
the process by which the validity and reliability of the results of the approaches to value are weighed objectively to determine the appraiser’s final opinion of value.
reconciliation
Net Operating Income Formula
Gross income – vacancy and rent losses – operating expenses
Value Formula
NOI / Capitalization Rate
Change, contribution, plottage, and substitution are some of the basic principles that affect what aspect of real estate?
Value
The standards of appraisal practice are
USPAP
An appraiser has been hired to prepare an appraisal report of a property for loan purposes. The property is an elegant old mansion that is now used as a restaurant. Which approach to value should the appraiser give the greatest weight when making this appraisal?
Income
Growth Rent Multiplier Formula
sales price ÷ gross rent
The amount of money a property is likely to command in the marketplace is its
market value.
Appraisers are expected to follow
USPAP
The market value of a parcel of real estate is
an estimate of the most probable price it should bring.
Which would be found in an appraisal but NOT in a CMA?
Description of highest and best use
A loss in value as the result of the market’s response to an item, rather than a deterioration of the item’s physical condition, is
functional obsolescence
An appraisal is
an opinion of value based on supportable evidence and approved methods.
Appraisal Methods
the Comparison Approach, the Income Approach, and the Cost Approach.
Once the appraiser has considered the three methods of valuation of real estate, the final step in the appraisal process is
Reconciliation
An appraisal used in connection with a federally related transaction must be performed by a competent individual whose professional conduct is subject to supervision and regulation by the state as mandated by
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).
The property being appraised is called
subject property
The cost approach to value is based on the principle of
Substitution
A sales associate or appraiser trying to estimate the market value of a property would be seeking
The probable price the property will bring
Air pollution from increased automobile traffic near a building with ornate exterior decoration has dissolved much of the intricate detail work. The cost of restoring the front of the building is roughly five times the building’s present value. These facts describe
Incurable physical deterioration
The data collected by the appraiser for the appraisal process includes
General data and specific data
The supposition that no physical or economic condition remains constant is exemplified by the principle of
supposition
Appraisals are required for
FHA and federally related loans
The characteristics of value include
demand, utility, scarcity, and transferability.
Value is created by the expectation that certain events will occur according to the principle of
Anticipation
A property use that is physically possible, legally permitted, economically feasible, and maximally productive is
highest and best use