Section 16 Flashcards
can perform appraisals if the licensee informs the client that the licensee is not a certified appraiser and the licensee cannot perform an appraisal for a federally related transaction
Real estate licensees
when performing an appraisal, a real estate licensee must follow
USPAP
a provision under Title XI that mandates states to license and certify appraisers
The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
authorized by the United States Congress as the source of professional appraisal standards and qualifications
The Appraisal Foundation
establishes the minimum education, experience, and examination requirements for real property appraisers to obtain state certification
The Appraisal Qualification Board (AQB) of the Appraisal Foundation
develops, interprets and amends the Uniform Standards of Professional Appraisal Practice (USPAP)
The Appraisal Standards Board (ASB)
maintains a database of state-certified and licensed appraisers who are eligible for federally related transaction appraisals.
The Appraisal Subcommittee’s (ASC)
There are two types of state appraisers:
Certified residential appraisers
Certified general appraisers
qualified to perform residential properties with four or less
Certified residential appraisers
qualified to perform appraisals for any type of property
Certified general appraisers
A transaction that involves a federal financial regulatory agency in either the primary or secondary mortgage market
federally related transaction
Licensees have three methods for determining value:
appraisal
comparative market analysis (CMA)
broker price opinions (BPO)
the amount paid for an item
Price
determined moment by moment dictated by how much a seller will sell a property for matching how much a buyer is willing to purchase it
Value
There are 7 types of value in real estate:
assessed value for property tax purposes insurance value value in use liquidation value investment value salvage value market value
Characteristics of value include:
demand
utility
scarcity
transferability
Principles of value include:
Substitution
Highest and best use
Increasing and decreasing returns
Conformity
continuing to improve a property past the maximum value
Over-improvement
value is accomplished when a property is in symmetry with other properties
Conformity
the property that is being appraised
The subject property
Cost as close to an exact duplicate as possible of the original structure.
Reproduction cost
involves calculating the reproduction/replacement cost of the structure;
subtracting calculated depreciation;
adding the value of the land.
cost-depreciation approach,
The cost of constructing a suitable replacement
Replacement cost
There are three types of depreciation:
Physical Deterioration
Functional Obsolescence
External Obsolescence
To calculate accrued depreciation using the age-life depreciation method:
(Effective age ÷ Total economic life) × Reproduction cost new
determines value based on future earnings
The income approach
the estimated income of an investment property that is fully rented with no vacancies
Potential gross income (PGI)
Potential gross income (PGI) – losses + other income =
Effective gross income (EGI)
Effective gross income (EGI) – operating expenses =
Net operating income (NOI)
include fixed expenses, variable expenses, and reserves for replacements of building components
Operating expenses
expenses that remain the same unaffected by occupancy such as taxes.
Fixed expenses
increase or decrease depending upon how the unit is used such as utilities
Variable expenses
money saved for future expenses such as roofing repairs
Reserves for replacement
the relationship between the net income and the present value of the property.
Capitalization rate
the ratio between a property’s gross monthly rental income and the selling price expressed as a ratio
The gross rent multiplier (GRM)
used when an investment property generates income from sources other than just rental income
A gross income multiplier (GIM)
an estimate of value used for sellers or buyers to
determine the best price, typically performed by a real estate agent
Comparative Market Analysis (CMA)
determine value based on properties recently sold, on the market, and expired
Comparative Market Analysis (CMA)
the process of estimating the value of real estate.
Appraisal
Combining of two or more adjoining properties into one
assemblage
a computer program that will provide a quick synopsis of value
Automated Valuation Model (AVM)
This approach involves finding a similar property, and reproducing the building as closely as possible, then depreciating for age and condition, etc.
cost-depreciation approach
A defect, wear or utility condition that is fixable
curable
A lowering in value due to any condition. Also, a write off for taxes
depreciation
The lifespan that a building is useful. Usually, though not always, dictated by tax law.
economic life
The most probable use of a property that is legally permissible physically, possibly financially, and results in maximum profitability
highest and best use
Property situations that diminish the value of the property and are not fixable at a cost less than the cost of replacement property
incurable
the highest price a willing buyer would pay, and a willing seller would accept
Market value
the added value that results from the assemblage of two or more adjoining properties
plottage
states that no prudent person would pay one million dollars when there is another one readily available that has the same use, design and income for five hundred thousand dollars, the lowest price one is preferred
Principle of substitution
The value of an inferior property is enhanced by association with superior properties.
progression
The value of a superior property is adversely affected by association with inferior properties.
regression
Building a suitable replacement that will meet the same needs at the same quality but will not be exactly the same
replacement cost
People’s preferences for a certain area
situs
Determination of how much something is worth.
valuation
