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Real Estate > Real Estate Appraisal > Flashcards

Real Estate Appraisal Flashcards

1
Q

Appraisal

A

Highest and best use. An opinion of value based on supportable evidence and approved methods.

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2
Q

Appraisal report

A

Opinion of market value on a property give to a lender or client with detailed market Information

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3
Q

Appraiser

A

An independent professional trained to provide an unbiased opinion of value in an imperial and objective manner, following an identified appraisal process.

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4
Q

Dodd-frank act

A

Required changes to the TILA and other legislation to prohibit the coercion and other activities that influenced appraisals in many cases of fraud.

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5
Q

Appraiser Independence requirements

A

Took effect October 15, 2010

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6
Q

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

A

Requires that any appraisal used in connection with a federally related transaction be performed by a competent individual who is licensed or certified by the state which the appraiser practices.

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7
Q

Appraisals of residential property valued at $250 or less are EXEMPT and need not be performed by licences or certified appraisers.

A

Non residential properties valued at more than $250 require a certified appraiser.

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8
Q

Uniform standards of professional appraisal practice

USPAP

A

Established by the Appraisal Standards Board of the Appraisal Foundation.

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9
Q

CMA analysis is based on

A
  • recently closed properties (sold)
  • properties currently on the market (competition)
  • priories that did not sell (expired listings)
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10
Q

Brokers price opinion

BPO

A

A less expensive alternative of evaluating property that is often by lenders working with home equity lines, refinancing, portfolio management, loss mitigation, and collections. Not to be confused with an appraisal. Can be used with Fannie Mae program but only in specific ways and using proper forms

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11
Q

Data needed by appraiser

A
  1. general data: covers the nation, region, city, and neighborhood. Researched the physical, economical, social, and political Influences that affect the value and potential of the subject property.
  2. Specific data: covers the type and features of improvements to the subject property as well as comparable properties that are similar to and competitive with the subject property.
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12
Q

Appraisal process

A
  1. Identify the problem
  2. Determine the scope of work
  3. Gather, record, and verify the necessary data
  4. Analyze data
  5. Form opinion of land value
  6. Reconcile values for final opinion of value
  7. Report final opinion of value
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13
Q

Uniform residential appraisal report

URAR

A

The form required by Fannie Mae and Freddie Mac. Illustrates the types of detailed Information required of an appraisal of residential property. Also highlights the extensive list of certifications required of the appraiser

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14
Q

Value

A

To have this a property must have:

  • demand
  • utility
  • scarcity
  • transferability
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15
Q

Market value

A

Considered the most probable price that a property should bring in a competitive and open market.

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16
Q

Determination of market value

A

Requires

  • the buyer and seller are unrelated and acting without undue pressure
  • both buyer and seller are well informed of propertys use and potential; including defects and advantages
  • payment is made in cash or équivalant
  • the price paid for is of normal market price
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17
Q

Market price

A

A property’s asking, offer, or sales price

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18
Q

Cost

A

Cost and value do not always equal to be the same

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19
Q

Anticipation

A

Value is created by the expectation that certain events will occur.

20
Q

Change

A

No physical or economic condition remains constant

21
Q

Competition

A

The interaction of supply and demand creates competition

22
Q

Conformity

A

Means that the maximum value is created when a property is in harmony with its surroundings.

23
Q

Contribution

A

The value of any part of a property is measured by its effect on the value of the whole parcel.

24
Q

Highest and best use

A

The most profitable single use of a property. Must be;
-physically possible
-legally permitted
-economically or financially feasible
-the most profitable or maximally productive
Can change with social, political and economical forces.

25
Q

The law of increasing returns

The law of diminishing return

A

As long as money spent on improvements provides an increased income of value, increasing returns applies.
When not, the law of diminishing does.

26
Q

Plottage

A

A principle that is evident when the consolidating of adjacent lots into a single, larger one produces a greater total land value than the sum of the two sites valued separately.
The amount that the value of the combined properties is Increased by successful assemblage.

27
Q

Assemblage

A

The process of merging two separately owned lots under one owner.

28
Q

Regression

A

The worth of a better quality property being adversely affected by the presence of a lesser quality property

29
Q

Progression

A

The value of a modest home becoming higher due to the larger fancier properties that surround it

30
Q

Substitution

A

Most important! The maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property. This is the foundation of sale comparison approach to appraising.

31
Q

Sales comparison approach

Aka market data approach

A

Value is obtained by comparing the property being appraised- the subject property-with recently sold comparable properties.

Most reliable approach to Appraisal

32
Q

Elements of comparison

In a sales comparison approach

A 
Property rights
Financing concession 
Market conditions
Conditions of sale
Market conditions since date of sale
Location or area preference
Physical features and amenities
33
Q

Sales comparison approach to value

A

An abbreviated version of the information that an appraiser will provide a client

34
Q

Cost approach of appraisal

A

5 steps:

  1. Estimate value of land
  2. Estimate current cost of buildings and improvements
  3. Estimate the amount of accrued depreciation
    4: deducts the accrued depreciation from construction cost
  4. Add land value
35
Q

Accrued depreciation

A

Loss in value

Goes with cost approach of appraisal

36
Q

Depreciation

A

A loss in value for any reason. Land is not considered a depreciating asset.
Considered curable or incurable

37
Q

3 classes of depreciation

A
  1. Physical deterioration: a curable item is one in need of repair. It is incurable if it is a defect causes by physical wear and tear and the correction would not be economically feasible or contribuante a comparable value.
  2. Functional obsolescence: loss in value from markets response to item. Outmoded or outdated. Curable if can be replaced or redesigned.
  3. External obsolescence: caused by negative factors not on the property. Environmental, social, economic. Always Incurable
38
Q

Straight line method
Aka economic age-life method
Of determining depreciation

A

Easiest but least precise way. It is assumed to occur at an even rate over a structured economic life. Property’s cost is divided by the number of years it’s expected economic life to determine annual depreciation

39
Q

Economic life

A

The period during which it is expected to remain useful for original intended purpose.

40
Q

Income approach of appraisal

A

Based on the present value of the right to future income. Assumes income generated by property will determine the property’s value. Used for income producing properties.

41
Q

Income capitalization approach to value

A
  1. Estimate property’s annual potential gross income. Made on market studies.
  2. Deduct an appropriate allowance for vacancy and rent loss and arrive at effective gross income.
  3. Deduct the annual operating expenses from the effective gross income to arrive at annual net operating income.
  4. Estimate the price a typical Investor would pay for the income produced by this particular type and class of principal property. Estimate the yield (capitalization rate) demanded
  5. Apply capitalization rate to property’s annual net operating income.
42
Q

Income approach formulation

A

Income \ rate =value
Income /value = rate
Rate x value = income

43
Q

Gross rent multiplier

GRM

A

Based on monthly rental income for a 1-4 unit residential rental property
Sales price/monthly gross rent = GRM

Must have data from at least 4 properties similar

GRM x rental income = estimated market value

44
Q

Gross income multiplier

GIM

A

Based on annual income for purchasing 5 or more units

Sales price / annual gross income = GIM

45
Q

Reconciliation

A

The act of analyzing and effectively weighing the findings from the 3 approaches of appraisal. Not simply taking the average of the 3 estimates of value.

46
Q

Appraisal

A

Highest and best use

Real Estate (13 decks)

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