Real Estate National Test Ch 16 Flashcards
D: Appraisal
Is an opinion of value based on supportable evidence and approved methods.
D: Appraisal Report
Is an opinion of market value on a property given to a lender or client with detailed market information.
D: Appraiser
Is an independent professional trained to provide an unbiased opinion of value in an impartial and objective manner, following an identified appraisal process.
D: Appraising
Is a professional service performed for a fee; it is a breach of accepted practice and ethics to collect a commission for an appraisal based on the value of the property appraised.
D: Appraiser Independence Requirements (AIR)
Regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals.
D: FIRREA ( Financial Institutions Reform, Recovery, and Enforcement Act of 1989)
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 in which the appraiser practices.
Every state now has an appraiser licensing agency, which is required by FIRREA to be separate from the agency that licenses real estate professionals.
what is a federally related transaction
is any real estate-related financial transaction in which a federal financial institution or regulatory agency is engaged.
What transactions are the examples of federally related transactions?
involve the sale, lease, purchase, investment, or exchange of real property. They also include the use of real property as security for a loan or an investment, including mortgage-backed securities.
Summary of Appraisal requirements
- Appraisals of residential property valued at $250,000 or less are exempt and need not be performed by licensed or certified appraisers.
- Nonresidential properties valued at more than $250,000 (raised to $500,000 in 2018) require a certified appraiser.
- Fannie Mae will not require a new appraisal for a limited cash-out refinancing when borrower and lender are the same, the original appraisal was performed no more than 12 months earlier (if performed more than four months earlier, an appraisal update is required), and the property should be in substantially the same condition (no significant updates or deterioration) that would affect market value.
D: Property Inspection Waiver (PIW)
An offer by Fannie Mae to waive the appraisal for eligible transactions with the borrower’s permission.
Given the many properties that have had appraisals entered in Fannie Mae’s Collateral Underwriter (CU) database, some loans purchased by Fannie Mae are eligible for a property inspection waiver (PIW). Fannie Mae’s Desktop Underwriter (DU) system will search the property address for an appraisal; if the first and last names of the borrowers on the earlier and present loan match, Fannie Mae will consider a PIW.
If the earlier appraisal was flagged for any reason (perhaps an over valuation), the PIW will not be issued.
D: Uniform Standards Of professional Appraisal Practice (USPAP)
A set of standards developed by the Appraisal Foundation that details information required for a property appraisal.
State licensing and certification criteria for appraisers must conform to what?
The requirements of the Appraisal Subcommittee of the Federal Financial Institutions Examination Council, as recommended by the Appraiser Qualification Board (AQB).
D: Appraiser Qualifications Board (AQB)
Members of the AQB meet regularly to review and make recommendations for changes to the level of education and experience required of appraisers.
D: Appraisal Standard Board (ASB)
Members of the ASB also meet often to discuss revisions and updates to USPAP.
List of the largest Appraising orginzations.
- American Society of Appraisers
- American Society of farm managers and Rural Appraisers,INC
- Appraisal Institute
- International Association Of Assessing Officers
- International Right of Way Association
- National Association of Independent Fee Appraisers
A Comparative Market Analysis (CMA) is based on what factors?
- Recently closed (sold) properties.
- Properties currently on the market ( competition for the subject property)
- Properties that did not sell ( expired listings in the area)
D: Broker’s Price opinion (BPO)
Is a less-expensive alternative for evaluating property that is often used by lenders working with home equity lines, refinancing, portfolio management, loss mitigation, and collections.
Although some BPOs are more extensive, including information about the neighborhood and an interior analysis, many are simply “drive bys” that verify the existence of the property, along with a listing of comparable sales.
A BPO should not be confused with an appraisal, which consists of more in-depth analysis of gathered information and which may be performed only by a licensed or certified appraiser.
A BPO cannot be used if the matter involves a federally related transaction that requires an appraisal and/or the transaction occurs in a state that requires one.
The data needed by the appraiser can be divided into what two basic classes?
- General data, which covers the nation, region, city, and neighborhood. The appraiser researches the physical, economic, social, and political influences that affect the value and potential of the subject property.
- Specific data, which 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.
What should be in the appriasal report?
- identify the real estate and real property interest being appraised
- state the purpose and intended use of the appraisal
- define the value sought
- state the effective date of the value and the date of the report
- state the extent of the process of collecting, confirming, and reporting the data
- list all assumptions and limiting conditions that affect the analysis, opinion, and conclusions of value
- describe the information considered, the appraisal approaches used, and the reasoning that supports the report’s conclusions (if an approach was excluded, the report should explain why)
- describe the appraiser’s opinion of the highest and best use of the real estate
- describe any additional information that may be appropriate to show compliance with the specific guidelines established in USPAP or to clearly identify and explain any departures from those guidelines
- include a signed certification, as required by USPAP
List the steps of the Apprisal Process
- Define the problem
- Determine the scope of work
3. Gather, record, verify, and analyze the necessary data.
General Date
i. Nation
ii. Region
iii. city
iv. Neighborhood
Specific Data
i. Subject Site
ii. Improvements
Data for Each Approach
i. Sales Data
ii. Cost Data
iii. Income & Expense Data
- Form opinion of value by each of the three approaches.
- Reconcile values for the final opinion of value.
- Report final opinion of value.
True or False
The information used to perform an appraisal is divided into two basic classes: general data and specific data.
True
D: Value
The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities.
What does DUST stand for & define?
- Demand - The need or desire for possession or ownership backed by the financial means to satisfy that need.
- Utility - The property’s usefulness for its intended purposes.
- Scarcity - a finite supply
- Transferability - The relative ease with which ownership rights are transferred from one person to another.
To have value what must a property have?
(DUST)
- Demand
- Utility
- Scarcity
- Transferability
D: Market price
The most probable price that a property would bring in an arm’s-length transaction under normal conditions on the open market.
Is a property’s asking, offer, or sales price.
What is required to determine the market price?
- The buyer and the seller are unrelated and acting without undue pressure.
- Both the buyer and the seller are well informed of the property’s use and potential, including both its defects and its advantages
- A reasonable time is allowed for exposure of the property in the open market
- Payment is made in cash or its equivalent
- The price paid for the property is a normal market price, unaffected by special financing amounts or terms, services, fees, costs, or credits incurred in the market transaction.
D: Market Value
Is an opinion of value based on an analysis of data. The data may include not only an analysis of comparable sales but also an analysis of potential income, expenses, and replacement costs.
D: Anticipation
The appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.
D: Change
The appraisal principle that holds that no physical or economic condition remains constant.
D: Competition
The interaction of supply and demand creates competition.
Profitable businesses tend to attract competition. For example, the success of a retail store may cause investors to open similar stores in the area.
This tends to mean less profit for all stores concerned unless the purchasing power in the area substantially increases.
D: Conformity
The principle of conformity means that maximum value is created when a property is in harmony with its surroundings.
Maximum value is realized if the use of land conforms to existing neighborhood standards.
In a single-family residential neighborhood, for instance, buildings should be similar in design, construction, size, and age.
Many parts of the country have experienced the “tear-down” phenomenon in which a large, expensive new home replaces a smaller, mid-century home that is more typical of others in the neighborhood.
The new home will not realize its maximum value because it has violated the principle of conformity—at least, until a significant number of such conversions has taken place.
