Real Estate Appraisal 2

Question 1

Approaches to market value

Answer 1

Cost approach
Sales comparison approach
Income approach

Question 2

Cost approach

Answer 2

Value is derived by reproducing a new property and depreciating it to be comparable

Question 3

Cost approach value estimate =

Answer 3

value of new improvements
- accrued depreciation
\+ value of site
\+ as-is value of improvements
= value estimate

Question 4

Cost types in the construction process

Answer 4

Direct cost
Indirect cost
*Factored in with profit for value

Question 5

Types of depreciation

Answer 5

Physical deterioration (wear/tear)
Functional obsolescence (dated)
External obsolescence (RR)

Question 6

How to calculate depreciation

Answer 6

Effective age / total economic life

Question 7

Times cost approach is useful

Answer 7

Special purpose commercial properties
New residential homes
Fire/hazard insurance

Question 8

Sales comparison approach

Answer 8

Value is derived by comparing the property being appraised to similar properties sold recently

Apply appropriate units of comparison and make adjustments to the sales prices based on the units

Question 9

Steps to the sales comparison approach

Answer 9

Select comparable properties (location, sq ft, age, design)
Adjust sales prices of comparable
Reconcile adjusted prices to indicate value of subject property

Question 10

What affect does the presence/absence of a characteristic have on the sale price of a comparable property?

Answer 10

CPA - if Comparable Poorer, Add to the sale price

CBS - if Comparable Better, Subtract from sale price

Question 11

What are the 2 types of adjustments?

Answer 11

Dollar and percentage

*Wanting to make the comparable property more like the subject

Question 12

Elements of comparison and adjustment

Answer 12

Financing terms
Time
Location
Physical characteristics
Non-realty components

Question 13

Property rights conveyed

Answer 13

Fee simple
Leased Fee
Easements
-Want comparable to have the same property rights

Question 14

Financing terms

Answer 14

Look for terms that would affect the price

Question 15

Conditions of sale

Answer 15

Does the sale price of the comparable represent the price that would be achieved in a competitive market?

Question 16

Expenditures made immediately after purchase

Answer 16

If the buyer has to make repairs, price was probably reduced for cost of them

Question 17

Market conditions

Answer 17

The same or different when sale of comparable vs date of value

Question 18

Economic characteristics

Answer 18

Affect the income-earning potential of the property

Question 19

Times the sales comparison approach is useful

Answer 19

Residential homes

Land/lot appraisals- no real cost

Question 20

Income approach

Answer 20

Value derived by analyzing a property’s capacity for earnings and capitalizing the income into a present value

Question 21

Rent, direct cap, and yield cap for income approach

Answer 21

Rent = value
Direct cap=1 yr income stream
Yield cap=multi-yr income stream

Question 22

Income capitalization techniques

Answer 22

Direct capitalization
Yield capitalization
-Should yield similar results when adequate data is available

Question 23

Direct capitalization

Answer 23

Used to convert a single year’s cash flow estimate into an indication of value

Question 24

Yield capitalization

Answer 24

Used to convert a stream of income estimates, including reversion from resale, into an indication of value

-Discounted cash flow analysis

Question 25

Times the income approach is useful

Answer 25

Commercial income producing properties
Apartments
Rental homes