Section 16: Property Valuation and Appraisal Flashcards
Property Valuation and Appraisal:
Appraisals Defined:
Value. This defines Real Estate. But __________o finds “Value”
Wh
Property Valuation and Appraisal:
Appraisals Defined:
* __________:
Act or process of developing an opinion of value.
Appraisal
Property Valuation and Appraisal:
Appraisals Defined:
* Appraisal:
* Real Estate Appraisals are used to either determine the value of __________ or to establish an appropriate sales price of real property.
Real Property
Property Valuation and Appraisal:
Appraisals Defined:
* Appraisal:
o Appraisals are only ‘__________’ and are not a ‘fact’.
Informed Opinion
Property Valuation and Appraisal:
Appraisals Defined:
* Appraisal:
o Opinions are derived from those who are trained to give accurate knowledge about a __________ of property, it’s location and all factors that determine value.
Parcel
Property Valuation and Appraisal:
Appraisal Facts:
* Appraisals can be ordered by __________ on any property.
Anyone
Property Valuation and Appraisal:
Appraisal Facts:
* Banks, Lenders, __________, Owners, and Speculators are examples of who can order an appraisal.
Government
Property Valuation and Appraisal:
Appraisal Facts:
* Banks, Lenders, Government, Owners, and __________ are examples of who can order an appraisal.
Speculators
Property Valuation and Appraisal:
Appraisal Facts:
* A licensed agent would have a __________ which is their commission if the property closes so their opinion is biased.
Financial Interest
Property Valuation and Appraisal:
Appraisal Facts:
* NOTE: Lenders most often __________ an appraisal before issuing a loan to ensure that the money the seller is asking meets the value of a non-interested licensed 3rd party.
Require
Property Valuation and Appraisal:
Appraisal Facts:
Typically, the __________ of a property will pay for an appraisal that was ordered by a bank/lender.
Buyer
Property Valuation and Appraisal:
Appraisal Facts:
* If paid for by the Purchaser. That appraisal is now ‘__________’ of the “Buyer”.
Personal Property
Property Valuation and Appraisal:
Appraisal Facts:
* The __________ does NOT own the appraisal.
Bank
Property Valuation and Appraisal:
Appraisal Facts:
* The __________ don’t own the appraisal and are NOT entitled to see a copy.
Sellers
Property Valuation and Appraisal:
Appraisal Facts:
* The appraisal is shared IF and WHEN a property does NOT __________ or __________ expected appraised value.
Meet or Exceed
Property Valuation and Appraisal:
Appraisal Facts:
* Sellers can __________ buyers for a copy but legally NOT entitled to it.
Ask
Property Valuation and Appraisal:
Appraisal Facts:
* If the property meets or exceeds the value listed in the sales contract, the bank or lender will lend AGAINST the property knowing that their ‘__________’ is covered by its value in case of loss.
Asset
Property Valuation and Appraisal:
* __________:
In an effort to prevent collusion or fraud, lending institutions use outside companies to hire 3rd party appraiser on a random basis.
Appraisal Management Companies (AMC)
Property Valuation and Appraisal:
* Appraisal Management Companies (AMC):
* The appraiser would have no __________ of who the lender is, who the borrower is, or where the property is in advance.
This is a preventative measure to ensure that the lender and the appraiser don’t collude to determine a fixed price. This was found to be a problem in the past and this measure acts as a stop to this practice, by making the appraiser assigned to the file, random.
Knowledge
Property Valuation and Property Valuation and Appraisal:
* Appraisal Management Companies (AMC):
* The appraiser in this case would have no knowledge of the lender, borrower or property, nor SHOULD they know the expected __________.
Sales Price
Property Valuation and Property Valuation and Appraisal:
* Appraisal Management Companies (AMC):
* The appraiser has NO __________ in the transaction and as such is forming their opinion of value ONLY.
Interest
Property Valuation and Property Valuation and Appraisal:
* Appraisal Management Companies (AMC):
* Most often, we as real estate agents will __________ appraisals when representing buyers and sellers.
Discuss
Property Valuation and Property Valuation and Appraisal:
* Appraisal Management Companies (AMC):
* If the property meets or exceeds the value listed in the sales contract, the bank or lender will lend __________ the property knowing that ‘their asset’ is covered in case of loss
Against
Property Valuation and Appraisal:
Appraisers:
* An appraiser is an individual who is __________ by the state authority.
Licensed
Property Valuation and Appraisal:
Appraisers:
o Board of Appraisers falls under the jurisdiction of the __________.
Arizona Department of Financial Institutions [AZDFI]
Property Valuation and Appraisal:
Appraisers Duties:
* In the state of AZ there are different __________ of appraisers, and they must pass a state exam.
Levels
Property Valuation and Appraisal:
Appraisers Duties:
o Trainee Appraiser must work for __________ Years as an Apprentice to a licensed appraiser.
Subject to direct supervision by a supervising appraiser who is certified in good standing.
3 Years
Property Valuation and Appraisal:
Appraisers Duties:
o Trainee Appraisers must work under direct supervision by a supervising appraiser for the required hours:
o __________:
2,000 Hours in no fewer than 12 months.
Licensed Residential
Property Valuation and Appraisal:
Appraisers Duties:
o Trainee Appraisers must work under direct supervision by a supervising appraiser for the required hours:
o __________:
2,500 hours in no fewer than 24 months.
Certified Residential
Property Valuation and Appraisal:
Appraisers Duties:
o Trainee Appraisers must work under direct supervision by a supervising appraiser for the required hours:
o __________:
3,000 hours in no fewer than 30 months.
Certified General
Property Valuation and Appraisal:
Appraisers Duties:
* Every 2 years, appraisers must complete __________ Hours of Continuing Education.
28 Hours
Property Valuation and Appraisal:
Appraisers Duties:
* Every __________ Years, appraisers must complete 28 Hours of Continuing Education.
2 Years
Property Valuation and Appraisal:
Appraisers Duties:
* Appraisers are paid by the Lending Institution, Owner or a __________.
3rd Party
Property Valuation and Appraisal:
Appraisers Duties:
o Must be __________ to the transaction so as to not influence value.
Neutral
Property Valuation and Appraisal:
Appraisers Duties:
o Appraisers are NOT paid on the __________ of the appraisal.
o ONLY paid for their time and the amount of work involved.
Results
Property Valuation and Appraisal:
Agents Comparative Market Analysis (CMA):
* We as real estate agents are NOT licensed to do formal appraisals but can provide __________ to clients with a Comparative Market Analysis (CMA).
Sales Data
Property Valuation and Appraisal:
* C.M.A. means __________.
Comparative Market Analysis
Property Valuation and Appraisal:
Agents Comparative Market Analysis (CMA):
* A study of the prices of similar properties using both real time and historical data that gives an idea of __________ and __________ market value for a subject property.
Current and Future
Property Valuation and Appraisal:
Agents Comparative Market Analysis (CMA):
* Agents perform a comparative market analysis for their clients to help them determine a price to __________ their home at when selling a home.
List
Property Valuation and Appraisal:
Agents Comparative Market Analysis (CMA):
* Agents perform a comparative market analysis for their clients to help them determine a price to __________ when buying a home.
Offer
Property Valuation and Appraisal:
Agents Comparative Market Analysis (CMA):
* Comparative Market Analysis (CMA) is an examination of the prices at which __________ properties in the same area recently sold or are under contract, how many days on market and other factors.
Similar
Property Valuation and Appraisal:
Agents Comparative Market Analysis (CMA):
This is much more focused on comparable properties and estimating a value based on properties that have __________ recently.
Sold
Property Valuation and Appraisal:
Agents Broker Price Opinion (BPO):
* This is the process used by an Agent to place an estimated __________ or ___________ on a piece of property.
Value or Potential Selling Price
Property Valuation and Appraisal:
o B.P.O. means __________.
Broker Price Opinion
Property Valuation and Appraisal:
Agents Broker Price Opinion (BPO):
* A Broker Price Opinion (BPO) is commonly used when a financial institution chooses to forego the expense and delay of a professional __________ and it is quicker and not as in-depth.
Appraisal
Property Valuation and Appraisal:
Agents Broker Price Opinion (BPO):
* Agents can be sub-contracted and __________ to do a Broker Price Opinion (BPO) on behalf of a bank or other lending institution.
Paid
Property Valuation and Appraisal:
Comparative Market Analysis (CMA) vs Appraisal:
* The __________ is performed by a real estate agent. This determines the current market value for the purpose of selecting the Highest possible list price.
Comparative Market Analysis (CMA)
Property Valuation and Appraisal:
Comparative Market Analysis (CMA) vs Appraisal:
* The __________ is performed by a licensed appraiser who has no vested interest in the valuation of the property.
Appraisal
Property Valuation and Appraisal:
Comparative Market Analysis (CMA) vs Appraisal:
* The appraiser isn’t earning a commission from the sale, so they are a __________ third-party.
Neutral
Property Valuation and Appraisal:
Comparative Market Analysis (CMA) vs Appraisal:
* The real estate agent while preparing a Comparative Market Analysis (CMA) is earning a commission from the sale, so they are a __________ party because they have a financial interest.
Biased
Property Valuation and Appraisal:
Comparative Market Analysis (CMA) vs Appraisal:
* Remember an appraiser is only being paid for their time and work. Their Job is to provide a licensed ‘__________’ not to create facts.
Opinion of Value
Property Valuation and Appraisal:
Appraisal:
Quiz:
In an appraisal, which of the following would be accurate statements?
The appraiser is neutral
The value of the property influences the cost of the appraisal
The agents assign properties to appraisers
The determined value is an opinion form the appraiser
The appraisal is owned by whoever orders and pays for it
The appraiser is neutral
The determined value is an opinion form the appraiser
The appraisal is owned by whoever orders and pays for it
Property Valuation and Appraisal:
Appraisal Regulations:
* After the Savings and Loan Crisis in the 190’s the federal government created the laws of the ________ Act.
o Passed in 1989 established regulations on appraisals of property
assessments that involved federally-related cases.
FDIC, Fannie Mae, Ginnie Mae, Freddie Mac, are all government insured loans.
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
Property Valuation and Appraisal:
Appraisal Regulations:
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA):
* Title XI:
This targeted the ________ not appraisers themselves.
Appraisal Standards
Property Valuation and Appraisal:
Appraisal Regulations:
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA):
* Title XI:
This stated that individual states follow the ________.
Uniform Standards of Professional Appraisal Practice (USPAP)
Property Valuation and Appraisal:
_________:
This is the nation’s foremost authority on the valuation profession. Our boards are responsible for setting congressionally authorized standards and qualifications for real estate appraisers and provide voluntary guidance for all valuation professionals.
The Appraisal Foundation
Property Valuation and Appraisal:
* ________:
* Adopted standardized competency training using regulations.
o Still known today as being the authority on creating quality control standards used in developing appraisals for the real estate industry.
The Uniform Standards of Professional Appraisal Practice (USPAP)
Property Valuation and Appraisal:
* The Uniform Standards of Professional Appraisal Practice (USPAP):
* Nearly every state has its own licensing authority.
* In ARIZONA it is the ________ that licenses appraisers.
Department of Financial Institutions (ADFI)
Property Valuation and Appraisal:
True or False: Appraisals are only an informed opinion and are not a fact.
True
False
True
Property Valuation and Appraisal:
Quiz:
Choose the correct statements about appraisers…
Every two years; must complete 28 hours of continuing education
Paid on the results at the end of each appraisal
Must be neutral to the transactions as to not influence value
Job is to provide facts and not an informed ‘opinion of value’
Every two years; must complete 28 hours of continuing education
Must be neutral to the transactions as to not influence value
Property Valuation and Appraisal:
Case Study:
From a lender’s perspective, what is the purpose of an appraisal?
Lenders most often require an appraisal before issuing a loan to ensure that the money the seller is asking meets the value of a non-interested licensed 3rd party.
Property Valuation and Appraisal:
Case Study:
You are representing a buyer; the home they are trying to purchase has appraised for a price much lower than anticipated. The seller is furious at the low-priced appraisal, and their agent demands a copy of the assessment. Are you allowed to send them a copy?
No, the Sellers don’t own the appraisal and are NOT entitled to see a copy. However, the sellers can ask buyers for a copy but are legally not entitled to it.
Property Valuation and Appraisal:
Case Study:
Who can order an appraisal?
Appraisals can be ordered by anyone on any property. Banks, Lenders, Government, Owners, and Speculators are examples of who can order an appraisal.
Property Valuation and Appraisal:
Case Study:
Can you, as a real estate agent, perform an appraisal for your client selling their home? If not, what kind of pricing expectations/guidance can you offer?
Agents perform a comparative market analysis for their clients to help them determine a price to list when selling a home or a price to offer when buying a home.
Property Valuation and Appraisal:
Quiz:
An appraisal that was ordered by the institutional lender, who is providing the buyer with an FHA loan is owned by the:
Seller
Bank
Buyer
Broker
Buyer
Property Valuation and Appraisal:
Quiz:
Which appraisal is the ONLY method allowed to determine the value in LAND?
Factual Data Approach
Market Data
Cost Approach
Comparison Value Approach
Market Data
Property Valuation and Appraisal:
Quiz:
The only person allowed to write an appraisal report is a(an):
Broker
Lending institution
Appraiser
B and C
Appraiser
Property Valuation and Appraisal:
Quiz:
Freddie Mac, Ginne Mae and FDIC loans usually require a certified appraisal. What are these loan types?
Appraisal Based Loans
Government Insured Loans
Conventional Loans
Secondary Market Loans
Government Insured Loans
Property Valuation and Appraisal:
Quiz:
Most appraisers follow the standards set forth by the:
United States Appraisal Association (USAA)
Uniform Standards of Professional Appraisal Practice (USPAP)
Board of Authorized Appraisers (BAA)
Appraisal Standards Institute (ASI)
Uniform Standards of Professional Appraisal Practice (USPAP)
Property Valuation and Appraisal:
Quiz:
A study of the prices of similar properties using both real time and historical data to give an idea of current and future market value for a subject property is referred to as:
Comparative market analysis
Superlative statistics
Brokers Price Option
Appraisal
Comparative market analysis
Property Valuation and Appraisal:
Quiz:
An appraiser in training in Arizona must work for how many years as an apprentice to an appraiser?
5 years
0 years
1 year
3 years
3 years
Property Valuation and Appraisal:
Land and Value:
All land, no matter where it is located has a value to someone. In this case, you will find that land has inherent value and can never depreciate to a value of _________.
Zero
Property Valuation and Appraisal:
Land and Value:
* Inherent Value:
It will always hold some value to someone.
* Land carries with it an inherent value in all areas of the world.
* Land typically does NOT _________, nor will it ever be of ZERO value.
Depreciate
Property Valuation and Appraisal:
Land and Value:
* Four Components of Value:
[Remember: DUST]
1.
2.
3.
4.
- Demand
- Utility
- Scarcity
- Transferability
Property Valuation and Appraisal:
Land and Value:
* One of Four Components of Value:
* _________:
Several factors can determine this including population, cost of living, local job market, and more – or lack of this.
Demand
Property Valuation and Appraisal:
Land and Value:
* One of Four Components of Value:
* _________:
Factors to consider in the usage of property include the highest and best use, zoning, and rental or residential property.
Utility
Property Valuation and Appraisal:
Land and Value:
* One of Four Components of Value:
* _________:
Land is not being created any longer and as such it is not easily available for sale. They don’t make any more land and as such, it has a perceived value.
Scarcity
Property Valuation and Appraisal:
Land and Value:
* One of Four Components of Value:
* _________:
The capability of the title of real property to be transferred from one owner to another; it’s an asset, which is desirable to have and hold.
Transferability
Property Valuation and Appraisal:
Highest and Best Use:
* Appraisers must be able to determine if the property is being used to its fullest _________.
Extent
Property Valuation and Appraisal:
Highest and Best Use:
* A condo complex sitting on 4 acres surrounded by warehouses is not best use.
* A multi-unit condo complex overlooking the _________ is that lands best use.
Ocean
Property Valuation and Appraisal:
Highest and Best Use:
Optimal use of a property determines its _________ value.
Highest
Property Valuation and Appraisal:
Highest and Best Use:
_________:
The positioning of a home on a lot. This can affect the market value of that home.
Orientation
Property Valuation and Appraisal:
Highest and Best Use:
Orientation:
_________ facing homes are MORE desirable in Arizona due to the sun’s heat.
North/South
Property Valuation and Appraisal:
Highest and Best Use:
* _________:
Land that is not needed to serve or support the existing improvement. Can be sold separately.
Excess Land
Property Valuation and Appraisal:
Highest and Best Use:
* There are four criteria to determine the subjects highest and best use:
Remember:
- Let’s Find More Profit L.F.M.P.
1.
2.
3.
4.
- Legal Permissibility
- Financial Feasibility
- Maximum Productivity
- Physical Possibility
Property Valuation and Appraisal:
Highest and Best Use:
Identify the property that does not meet it’s highest and best use:
A high rise apartment building in a dense city
A golf course built on an existing land fill
A manufacturing plant in a college town
A manufacturing plant in a college town
Property Valuation and Appraisal:
Highest and Best Use:
* There are four criteria to determine the subjects highest and best use:
* Legal Permissibility: Determined by reasonable and legal _________ of a vacant land or an improved property.
* Financial Feasibility:
Land is considered feasible by its ability to justify its use from an _________ point of view, for instance to make a profit over time.
* Physical Possibility:
The appraisal report describes _________ aspects of the property, surrounding properties and complementary attributes such as proximity to traffic avenues, visibility, and other things that would determine the best use of the subject property.
* Maximum Productivity:
Use of the land that would produce the maximum _________ return based on the other Highest and Best Use (HBU) factors.
Usability
Economic
Physical
Profitable
Property Valuation and Appraisal:
Best Use:
* There are four criteria to determine the subjects highest and best use:
* _________:
Determined by reasonable and legal usability of a vacant land or an improved property.
Legal Permissibility
Property Valuation and Appraisal:
Best Use:
* There are four criteria to determine the subjects highest and best use:
* _________:
Land is considered feasible by its ability to justify its use from an economic point of view, for instance to make a profit over time.
Financial Feasibility
Property Valuation and Appraisal:
Best Use:
* There are four criteria to determine the subjects highest and best use:
* _________:
The appraisal report describes physical aspects of the property, surrounding properties and complementary attributes such as proximity to traffic avenues, visibility, and other things that would determine the best use of the subject property.
Physical Possibility
Property Valuation and Appraisal:
Best Use:
* There are four criteria to determine the subjects highest and best use:
* _________:
Use of the land that would produce the maximum profitable return based on the other Highest and Best Use (HBU) factors.
Maximum Productivity
Property Valuation and Appraisal:
* Real Estate Valuation is driven by a multitude of economic factors:
External Effects on Value:
* _________:
These are factors that exist near the subject property that affect its value. Nearby industry produces air pollution could negatively affect property values.
Physical / Environmental
Property Valuation and Appraisal:
* Real Estate Valuation is driven by a multitude of economic factors:
External Effects on Value:
* _________:
These are factors of an area determined by its dominant population can influence property values. High Society New Yorkers don’t want to live around low-income housing.
Social Class
Property Valuation and Appraisal:
* Real Estate Valuation is driven by a multitude of economic factors:
External Effects on Value:
* _________:
Local governments will have an effect on property values.
- Zoning varies by city and some people prefer to live in that city.
Political
Property Valuation and Appraisal:
* Real Estate Valuation is driven by a multitude of economic factors:
External Effects on Value:
* _________:
These are conditions in a geographic area effect value. Favorable conditions could increase job opportunities or could have an adverse effect.
Economic
Property Valuation and Appraisal:
* Real Estate Valuation is driven by a multitude of economic factors:
External Effects on Value:
* _________:
If there is a large profit margin in any given market i.e. flipping, renting, building etc. There would be an increase in competition, thus driving down prices towards a point of equilibrium.
Competition
Property Valuation and Appraisal:
* Real Estate Valuation is driven by a multitude of economic factors:
External Effects on Value:
* _________:
Social and economic variables that can alter property values. Local economy suffered a downturn, this would negatively affect the property values in its area.
Change
Property Valuation and Appraisal:
Land Value Definitions:
* _________:
Income expected in future value Tax breaks to big employers would be seen as a boom to the surrounding housing area as works would also move in.
Anticipation
Property Valuation and Appraisal:
Land Value Definitions:
* _________:
A property conforms to the other houses in a neighborhood.
Properties that don’t conform to the area bring less in value on the open market.
Conformity
Property Valuation and Appraisal:
Land Value Definitions:
Property Valuation and Appraisal:
Land Value Definitions:
* _________:
Property value will increase if more valuable property enters an area. A new Million $ development is slated, area homes prices rise.
Progression
Property Valuation and Appraisal:
Land Value Definitions:
* _________:
Property value will decrease if less valuable property enters an area. A new airport in a residential community would bring prices down.
Regression
Property Valuation and Appraisal:
Land Value Definitions:
* _________:
Increasing the value of smaller parcels by combining them into one larger group. To increase the value, you combine small properties into one.
Plottage [Assemblage]
Property Valuation and Appraisal:
Land Value Definitions:
* _________:
The direction of community growth as realized over a period of time. New developments are headed towards Casa Grande and Wickenburg.
- New developments are headed towards existing outlying areas.
Directional Growth
Property Valuation and Appraisal:
Land Value Definitions:
* _________:
Property and it’s values have life cycles, mainly determined by age –new build, steady but little improvements and then finally a state of decline.
- Known as life cycles
- New build, steady but little improvements and then finally a state of decline
- This is commonly seen in a communities’ age.
Integration, Equilibrium, and Disintegration [Growth, Stability, Decline, and Renewal]
Property Valuation and Appraisal:
Land Value Definitions:
Case Study:
An example of a community life cycle:
New Jersey post WWII, soldiers return home and buy/build new homes in the far suburbs away from the city. As more families move there, values went up.
As values increased along with demand, business, jobs, and schools followed.
Eventually new growth moved beyond those suburbs and more people choose to move out to the ‘______’ area, thus values in this community fell.
The properties declined to a point where this area was no longer desirable.
Finally, investors and speculators move in and start buying the blighted property, sometimes to demolish and rebuild new mixed use or high rise communities.
Typically, younger generational buyers buy here to be closer to their work, schools and other existing businesses, thus prices go back up!
Newer
Property Valuation and Appraisal:
Market Value:
* The whole reason to have an appraisal done is to determine the _________.
Fair Market Value (FMV)
Property Valuation and Appraisal:
Market Value:
* _________:
This is the price that property would sell for on the open market.
Fair market value (FMV)
Property Valuation and Appraisal:
Market Value:
* Fair Market Value [FMV]:
*It is the _________ that would be agreed on between a willing buyer and a willing seller.
- Neither being required to act.
- Both having reasonable knowledge of the facts.
Listing Price
Property Valuation and Appraisal:
* Fair Market Value [FMV]:
*Land and Real Property is expected to appreciate, although it _________ always.
Doesn’t
Property Valuation and Appraisal:
* Fair Market Value [FMV]:
*_________:
Anticipated increase in value in a home overtime.
Appreciation
Property Valuation and Appraisal:
* Fair Market Value [FMV]:
*In the eyes of the seller, the properties market value might be more than the fair market value based upon external factors or _________.
Anticipation
Property Valuation and Appraisal:
Other Types Of Value:
* _________:
Insurable value is less than the property’s appraised or market value because it excludes the value of land on which the building stands.
Insurable Value
Property Valuation and Appraisal:
Other Types Of Value:
* _________:
The estimated value that an asset will have at the end of its useful life.
Salvage/Residual Value
Property Valuation and Appraisal:
Other Types Of Value:
* _________:
This is simply the amount of the loan or the amount being financed.
Loan (Mortgage) Value
Property Valuation and Appraisal:
Appreciation:
* _________:
A property can appreciate due to an owner improving the property, updating it, repairing it or otherwise making it more desirable, thus increasing the value.
Earned Increment
Property Valuation and Appraisal:
Appreciation:
* _________:
An increase in value due to the results of economic factors, like directional growth, or finding natural resources in the ground.
Unearned Increment
Property Valuation and Appraisal:
Appreciation:
The anticipated increase in value of property is known as ______________.
Appreciation
Property Valuation and Appraisal:
Depreciation:
* _________:
Reduction in the value of an asset over time due to wear and tear.
Depreciation
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
Remember Fear Every Predator (F.E.P.)
1.
2.
3.
- Functional Depreciation
- Economic Depreciation
- Physical Depreciation
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
* _________:
*This is caused by unfavorable conditions external to the property – usually impossible to repair.
Economic Depreciation
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
* Economic Depreciation:
*Local economy, financing economics, loss of material and labor sources are examples.
*Homes surrounded by newly built _________ or _________ properties.
Commercial or Industrial
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
* _________:
o Caused by a reduction in the usefulness or desirability because of an outdated design.
Functional Depreciation
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
* Functional Depreciation:
* A sunken ‘conversation pit’ or a home without central Air Conditioning.
* Usually, cannot be easily changed without out _________ the value of the property.
Re-Pricing
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
* _________:
* Deterioration of an asset due to age, wear, neglect or ignorance.
Physical Depreciation
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
* Physical Depreciation:
* Also known as ‘_________’ whereby an asset loses value due to physical deterioration.
Waste
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
* Physical Depreciation:
* Some forms of physical depreciation can be _________ by correcting the issues updating the property and maintaining the property.
Cured
Property Valuation and Appraisal:
Depreciation:
There are three types of Depreciation relating to Real Estate:
* Physical Depreciation:
* Some forms of physical depreciation are _________ as the cost is too great.
Incurable
Property Valuation and Appraisal:
Case Study:
What are the four components that affect land value?
Four Components of Value are Demand, Utility, Scarcity, and Transferability (DUST).
Property Valuation and Appraisal:
Case Study:
You have just been given a vacant 5-acre plot of land in the middle of a growing city. How would you use it to its highest and best use?
Optimal use of a property determines its highest value. A multi-unit condo complex overlooking the ocean is that lands best use.
Property Valuation and Appraisal:
Case Study:
What is fair market value?
Fair market value (FMV) is the price a property sells for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act and both having reasonable knowledge of the facts.
Property Valuation and Appraisal:
Case Study:
Your client is trying to sell their home. It was built in 1963, and though it was common then, it now has comparably low ceilings. What type of depreciation is this?
It is Functional Depreciation caused by reduced usefulness or desirability because of an outdated design.
Property Valuation and Appraisal:
Quiz:
All of the following are correct components of the value of land with the exception of:
Demand
Transferability
Scarcity
Anticipation
Anticipation
Property Valuation and Appraisal:
Quiz:
Excess land has what type of value:
Economic Loss Value
Inherent Value
Physical Value
Material Gain Value
Inherent Value
Property Valuation and Appraisal:
Quiz:
A mining company ceased operations permanently nearby a small town. The town was primarily inhabited by miners who lost their jobs and moved away, causing the price of land to plummet. What component of the value of land does this relate to?
Demand
Utility
Scarcity
Transferability
Demand
Property Valuation and Appraisal:
Quiz:
Which of the following would be considered an improvement:
Refinished hardwood flooring
Redoing the plaster in an existing cracked plaster pool
Adding onto on a rental property
Changing the appliances in a vacation rental
Adding onto on a rental property
Property Valuation and Appraisal:
Quiz:
Increasing property values by combining separate parcels of land;
Plottage
Congregation
Conjoining
Progression
Plottage
Property Valuation and Appraisal:
Quiz:
Which party can determine if a property is being used to it’s highest and best use?
County Assessor
Appraiser
Developer
Land Surveyor
Appraiser
Property Valuation and Appraisal:
Quiz:
A home built in 1959 with an unattached garage is in a neighborhood of newer homes having attached garages. What type of depreciation has occurred?
Economic depreciation
Comparative depreciation
Physical depreciation
Functional depreciation
Functional depreciation
Property Valuation and Appraisal:
Quiz:
Because of the automotive industry suffering in Detroit, home values depreciated drastically due to what:
Economic depreciation
Comparative depreciations
Physical depreciation
Functional depreciation
Economic depreciation
Property Valuation and Appraisal:
Quiz:
Decreasing home values due to a prison being built in the area is an example of the economic factor of:
Plottage
Directional growth
Anticipation
Regression
Regression
Property Valuation and Appraisal:
Steps In An Appraisal:
* The appraiser will use all of these techniques to find a property’s value:
Remember: P.R.C.E.V.R.F:
(Prepare Reviews Created Estimating Valuation Reconciling Finals)
1.
2.
3.
4.
5.
6.
7.
- Preparing for the Appraisal
- Review of the Property
- Creating the Full Appraisal Report
- Estimate the value of land
- Choose Which Of the Three Valuation Approaches To Use
- Reconcile the Valuations
- Create Final Report
Property Valuation and Appraisal:
Steps In An Appraisal:
1. Preparing for the Appraisal:
* Identify the __________S?
o Land, Commercial, Residential, Income Producing etc.
ubject Property
Property Valuation and Appraisal:
Steps In An Appraisal:
1. Preparing for the Appraisal:
* __________ is it being appraised?
o Purchase, Refinance, Lender Requirement, Government
Why
Property Valuation and Appraisal:
Steps In An Appraisal:
1. Preparing for the Appraisal:
* What __________ of appraisal is being ordered?
o Full Appraisal, Mini-Appraisal or Specific Data Appraisal.
Type
Property Valuation and Appraisal:
Steps In An Appraisal:
2. Review of the Property:
* Identify the property itself and __________ it as well as the area
o Appraiser will take photos, sketch the property, measure etc.
Inspect
Property Valuation and Appraisal:
Steps In An Appraisal:
2. Review of the Property:
* Take Notice of __________ or property specific items
o Pro’s or Cons that affect value could be a pool, sqft, views etc.
Unique
Property Valuation and Appraisal:
Steps In An Appraisal:
3. Creating the Full Appraisal Report:
* Research Data:
o Pull historical sales data from __________.
Tax Records
Property Valuation and Appraisal:
Steps In An Appraisal:
3. Creating the Full Appraisal Report:
* Identify comparable properties to use as comps.
o Identify what __________ comps have compared to subject.
Features
Property Valuation and Appraisal:
Steps In An Appraisal:
3. Creating the Full Appraisal Report:
* __________ locations.
o Using maps, flood maps, proximity to features like schools.
Compare Properties
Property Valuation and Appraisal:
Steps In An Appraisal:
4. Market and Area Description:
o Create a __________ that determines overall area and market conditions.
Report
Property Valuation and Appraisal:
Steps In An Appraisal:
4. Market and Area Description:
* Describe in __________ subject property.
o Ex. SqFt, age, location, bed/bath, upgrades, conditions etc.
Detail
Property Valuation and Appraisal:
Steps In An Appraisal:
4. Market and Area Description:
o __________:
This is the amount of property that is usually heated/cooled by HVAC.
Livable Square Footage
Property Valuation and Appraisal:
Steps In An Appraisal:
4. Market and Area Description:
o __________:
The full property, including garages, sheds, cabanas etc.
Under Roof Square Footage
Property Valuation and Appraisal:
Steps In An Appraisal:
4. Estimate the Value of Land:
o Adjust for the __________ of land
Inherent Value
Property Valuation and Appraisal:
Steps In An Appraisal:
* The appraiser will use all of these techniques to find a property’s value:
* Estimate the value of land
* Adjust for the inherent value of land:
Choose Which Of the Three Valuation Approaches To Use:
o __________
o __________
o __________
Sales Approach
Cost Approach
Income Approach
Property Valuation and Appraisal:
Steps In An Appraisal:
Reconcile the Valuations:
o Appraiser weighs the results of the three different __________ to Value and arrive at an opinion of value.
o NOTE: This is not simply an average of the three values.
Approaches
Property Valuation and Appraisal:
Steps In An Appraisal:
Create Final Report:
o Prepare a report using the __________.
o This is the form most accepted by both government and lenders.
Uniform Residential Appraisal Report
Property Valuation and Appraisal:
Steps In An Appraisal:
Three Methods of Appraising:
Remember: S.C.I.
1.
2.
3.
- Sales Comparison Approach
- Cost Based Approach
- Income Approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach [Market Data Approach]:
* Compares recently __________ properties in the same area to the subject.
Sold
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach [Market Data Approach]:
* Substitution:
- The ‘__________’ is the basis for the market data or sales approach to doing an appraisal.
Principle of Substitution
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach [Market Data Approach]:
* __________:
- The value of a property usually is established by the cost of acquiring an equivalent comparable property that has the same use, design, and income.
Substitution
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach:
*Most __________ appraisal approach used for Residential Properties and Income Producing properties.
Common
Property Valuation and Appraisal:
Three Methods of Appraising:
__________:
This is the ONLY type of appraisal that can be used when appraising LAND.
Yes, that means land must have comps to use to identify subject property value.
Sales Approach
Property Valuation and Appraisal:
Three Methods of Appraising:
__________:
* Appraiser must be familiar with both the area and the type of property.
* Some features found in one area may have ZERO or negative value in another area.
o Pool in AZ is an added value, but in Maine, it’s a NEGATIVE value.
Sales Approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach:
* Appraiser identifies comps and __________ them based on differences including.
o Size, location, features, improvements, age, upgrades etc.
Adjusts
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach:
o Contribution:
The ‘__________’ states that the worth of an improvement is what it adds to the market value of the entire property, not what it cost to add the improvement!
Principle of Contribution
Property Valuation and Appraisal:
Steps In An Appraisal:
Which of these are some of the steps you’d see in an appraisal?
Estimating the value of the land
Assess if a full appraisal, mini-appraisal or a specific data appraisal is needed.
Describe the details of the subject property including square footage, age and location, upgrades/conditions etc.
Prepare a report on their own with no guidance system.
Estimating the value of the land
Assess if a full appraisal, mini-appraisal or a specific data appraisal is needed.
Describe the details of the subject property including square footage, age and location, upgrades/conditions etc.
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
* _________:
The identified property being appraised.
Subject
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
* _________:
Selected properties of similar value and type used to determine valuation.
Comparables
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
* Comparables:
* When Selecting Comparables:
o It is important to make sure the comparables have _________ ages of the house, size, sale price, and square footage, pool, location, and features.
Similar
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
* Comparables:
o Appraisers will try to use properties found _________ in distance to subject.
Closest
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
* Comparables:
* Adjusting Comparables:
o Appraiser must _________ the subject to the comparable properties.
Balance
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
o _________:
No two properties are EXACTLY the Same.
Non-Homogeneity
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
o Non-Homogeneity:
o The ‘_________’ is ALWAYS adjusted for value, NOT the SUBJECT.
Comparable Property
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
o Non-Homogeneity:
* In many cases, two similar properties will have varying component values, so the comparables MUST be adjusted to _________ either up or down to meet subject.
Compensate
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
o Non-Homogeneity:
*When Comparable is INFERIOR you MUST _________ to find our subject value! (Refer to CIA)
Add
Property Valuation and Appraisal:
Three Methods of Appraising:
Sales Approach Only!! [Subject vs Comparable Property]:
o Non-Homogeneity:
* When Comp is SUPERIOR you _________ to find our subject value! (Refer to CBS)
Subtract
Property Valuation and Appraisal:
Three Methods of Appraising:
_________:
* Most commonly used on rare or public properties such as libraries, schools or churches where it is HARD to find comparable properties.
Cost Approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* How much a property would cost to Replace or Rebuild after subtracting _________.
Depreciation
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* This is used because the appraiser _________ find comparable properties so they must calculate the costs of re-creating a new building in today’s dollars then subtract depreciation.
Can’t
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
o The Cost of Construction (-) Depreciation (+) Land = _________
Market Value
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
o To find the COST of LAND, you MUST use the ‘_________’.
Sales Comparison Approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Costs and Calculations used to determine the value of the _________ building.
Existing
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Reproduction Costs:
The cost of an exact reproduction.
o Used in _________ buildings or buildings with unique character.
Historical
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Reproduction Costs:
o Costs are typically much higher to reproduce “_________” pieces.
Period
Property Valuation and Appraisal:
Three Methods of Appraising:
Case Study:
In this instance, it’s not easy to find comps for an old school house.
So the appraiser will find the value of the land first using the sales or market data approach.
Then, the appraiser will find the cost of rebuilding the school in todays dollars.
Once they find the cost to rebuild, they take the depreciation value (known by the appraiser) and deduct that from the cost to rebuild.
The depreciated cost of rebuilding and the cost of the land is now the appraisal value using the “__________”.
Cost Approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Quiz:
Assuming a building is depreciated by 70% (it still has a value of 30% of the current cost to rebuild) and the cost to rebuild today is $100,000. The land is known to be valued at $25,000, what is the value using the cost approach?
$150,000
$55,000
$155,000
$95,000
In this case, the property has a value of $30,000 and the land has a value of $25,000 so the value of this property is $55,000 total!
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* ___________:
The cost of rebuilding using current materials.
Replacement Costs
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Replacement Costs:
o Like or as – similar to original but built using today’s materials.
o Using ___________ windows in the event that Leaded Glass windows are not available.
Dual Pane
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Replacement Costs:
o NOTE: While figuring replacement costs you must FIRST find the value of the land
o Then you ___________ the value of the land to physical site improvements i.e. building, driveway, etc.
Add
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Determine the subject’s value by using one of the three following methods:
Remember: S.Q.U.
1.
2.
3.
- Square Footage Method
- Quantitative Method
- Unit in Place Method
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Determine the subject’s value by using this method:
o ___________: Costs per SqFt. derived from building.
IMPORTANT: $80/SqFt. @ 3000 SqFt. Bldg. = $240,000
Square Footage Method
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Determine the subject’s value by using this method:
o Square Footage Method:
Generally used in building ___________ properties.
Custom/Unique
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Determine the subject’s value by using this method:
o ___________:
Computerized itemization of materials & labor.
Materials @ $65,000 and Labor @ $35,000 = $100,000
Quantitative Method
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
o Quantitative Method:
Commonly used in ___________ estimating.
Insurance
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
* Determine the subject’s value by using this method:
o ___________:
o Estimating costs of all property components.
Foundation @ $10,000, Walls/Roof @ $15,000 etc.
Unit in Place Method
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
o ___________:
Currently found commonly in commercial warehouses and large-scale projects.
Unit in Place Method
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Quiz:
True or False: To find the value of land, the sales comparison approach must be used.
True
False
True
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Case Study:
What are the three valuation approaches of appraising?
Three Valuation Approaches for appraising are
1). Sales Approach
2). Cost Approach
3). Income Approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Case Study:
What appraisal approach/method can be used for appraising land? Is this a standard method for residential properties as well?
Substitution is the ONLY type of appraisal that can be used when appraising LAND. It is the most common appraisal for Residential Properties and Income-producing properties.
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Case Study:
Your client is selling a unique property in a remote part of the state with no comparable to go by; what method(s) of appraisal can be used in this case?
The cost approach is most commonly used on rare or public properties such as libraries, schools, or churches where it is hard to find comparable properties
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Case Study:
What is the difference between Replacement and Reproduction Cost?
Reproduction Costs are the cost of an exact reproduction used in historical buildings or buildings with unique character. On the other hand, Replacement Costs are the cost of rebuilding using current materials.
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Quiz:
Which appraisal method would most likely be used for a historical lighthouse on an isolated island?
Sales comparison approach
Income approach
Cost approach
Loan data approach
Cost approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Quiz:
What type of appraisal method is the only approach that can be used when valuing land?
Sales comparison approach
Income approach
Cost approach
Loan data approach
Sales Comparison Approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Quiz:
The cost to rebuild the existing structure in today’s dollars and using currently available items would be:
Reproduction Cost
Cost in Place
Reduction Valuation
Replacement Cost
Replacement Cost
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Quiz:
Which appraisal is the only method allowed to determine the value in LAND?
Factual Data Approach
Market Data
Cost Approach
Comparison Value Approach
Market Data
Property Valuation and Appraisal:
Three Methods of Appraising:
Cost Approach:
Quiz:
Most single-family homes are appraised using this method:
Sales comparison approach
Income approach
Cost approach
Loan data approach
Sales comparison approach
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
This is used to find the value of a property that Earns Money.
like ________ properties.
Investment
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach is also called the ________ Approach.
Capitalization
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* This method converts the ________ gained from a property into an estimate of its value.
Income
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* Appraisers generally use this method for ________ buildings such as shopping centers, office buildings, rental property, and apartment buildings.
Commercial
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* Estimate the value of a property by taking the ________ of the rent collected and dividing it by the capitalization rate.
Net Operating Income (NOI)
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* Estimate the value of a property by taking the Net Operating Income (NOI) of the rent collected and dividing it by the ________.
Capitalization Rate
Property Valuation and Appraisal:
Three Methods of Appraising:
________:
* Estimate the value of a property by taking the Net Operating Income (NOI) of the rent collected and dividing it by the capitalization rate.
Income Approach [Capitalization Approach]
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
o Capitalization Rate = Net Operating Income / ________
Current Market Value
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
o Capitalization Rate = Net Operating Income / ________
Current Market Value
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* To determine value using the income approach:
Calculate CAPitalization Rate:
o Calculate the Yearly ________ income of the investment property.
o ________ the operating expenses associated with the property from the gross income.
o ________ the net income by the property’s purchase price.
Gross
Subtract
Divide
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* When the CAP rate goes Down, the value of a property goes up. This affects the expenses.
o Expenses go Down = more money earned to pay off fees for the home = ___________ value of property.
Higher
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* When the CAP rate goes Up, the value of a property goes down.
o Expenses go Up = less money earned to pay off fees for the home = ___________ value of property.
Lower
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* When the CAP rate goes down, the value of a property goes up.
o Expenses go down = more money earned = ________ value of property.
* When the CAP rate goes up, the value of a property goes down.
o Expenses go up = less money earned = ________ value of property.
Higher
Lower
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
Gross Rent Multiplier:
How long till I’m repaid?
* An alternative method to determining the CAP rate to income producing property is the ________.
Gross Rent Multiplier (GRM)
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
o G.R.M. means ________.
Gross Rent Multiplier (GRM)
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
* Gross Rent Multiplier is the Ratio of the price of a real estate investment to it’s _________ before accounting for expenses such as property taxes, insurance, utilities.
Annual Rental Income
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
o Gross Rent Multiplier Formula is ________ (/) Annual Gross Income
Market Value
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
Gross Rent Multiplier:
o Market Value = Gross Rent Multiplier (X) Annual Income
* Calculates how many months until your original investment is ________.
Recouped
Property Valuation and Appraisal:
Three Methods of Appraising:
Income Approach [Capitalization Approach]:
Gross Rent Multiplier:
** REMEMBER: Understand, if they give you ‘______’ on the exams but the question asks for monthly, you divided the yearly rental income by 12 to get each months income. Same, if they give you monthly rents but ask for yearly income, multiply by 12 for the yearly.
It’s easy to think you would know this, but in the tests, they are going to try and trick you - so make sure you READ what they are ASKING you, and, what they are TELLING you.
Yearly Income
Property Valuation and Appraisal:
Less Accurate Forms Of Valuation:
* ______:
Instead of doing a full interior/exterior appraisal, drive by’s of homes by licensed real estate appraisers are sometimes used to determine a comparable homes value.
Drive-By Appraisal
Property Valuation and Appraisal:
Less Accurate Forms Of Valuation:
* ______:
A less accurate but quick type of appraisal done from a computer where the appraiser uses tax records and MLS to accumulate data for valuations.
Desktop Appraisal
Property Valuation and Appraisal:
Less Accurate Forms Of Valuation:
* Drive-By Appraisal:
- This is what a lot of the next generation of ‘I-Buyers’ are doing now when they are making offers on homes in select cities.
- In their case, they have their own ______ doing these assessments which is cheaper than an appraiser.
Agents
Property Valuation and Appraisal:
Less Accurate Forms Of Valuation:
* ______: Companies like Zillow® or Redfin® provide a service that can provide real estate property valuations using mathematical modelling combined with a database.
Automated Valuation Models
Appraisals, GRM, Appreciation and Depreciation:
Quiz:
An appraiser doing an appraisal on an apartment building that has 42 units would most likely use the ________________ approach for their appraisal.
Income
Appraisals, GRM, Appreciation and Depreciation:
Case Study:
What is the difference between Replacement and Reproduction Cost?
Reproduction Costs are the cost of an exact reproduction used in historical buildings or buildings with unique character. On the other hand, Replacement Costs are the cost of rebuilding using current materials.
Appraisals, GRM, Appreciation and Depreciation:
Case Study:
What is an alternative to the CAP rate for income-producing properties? How is this calculated?
An alternative method to determining the CAP rate for income-producing property is the GRM. GRM is the Gross Rent Multiplier. It is the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, utilities,
GRM Formula = Market Value (/) Annual Gross Income
Appraisals, GRM, Appreciation and Depreciation:
Case Study:
What appraisal method is usually used for appraising commercial buildings?
Appraisers generally use income methods for commercial buildings such as shopping centers, office buildings, rental property, and apartment buildings.
Appraisals, GRM, Appreciation and Depreciation:
Case Study:
How is a CAP rate calculated?
Capitalization Rate = Net Operating Income / Current Market Value
Appraisals, GRM, Appreciation and Depreciation:
Quiz:
The cost to rebuild the existing structure in today’s dollars and using currently available items would be:
Reproduction Cost
Cost in Place
Reduction Valuation
Replacement Cost
Replacement Cost
Appraisals, GRM, Appreciation and Depreciation:
Quiz:
What is an alternative method to determining the capitalization rate when comparing rental properties:
Current market value
Gross rent multiplier
Capitalization approach
Sales comparison approach
Gross rent multiplier
Appraisals, GRM, Appreciation and Depreciation:
Quiz:
The owner of a small apartment complex recently gave the property a facelift which cost $42,000 and took 6 months. During that time, the owner paid for the parking lot to be repaved at a cost of $6400. Lastly, the new roof and windows cost $14,000. The upside was that the rents increased and the vacancies went from 14% to 7%. Which of the following is not true:
The cap rate increased
The value of the building went up
The cap rate decreased
The increase in rents also contributed to a higher valuation
The cap rate increased
Appraisals, GRM, Appreciation and Depreciation:
Quiz:
Which appraisal method would most likely be used for an apartment complex?
Sales comparison approach
Income approach
Cost approach
Loan data approach
Income approach
Appraisals, GRM, Appreciation and Depreciation:
Quiz:
Using a capitalization method to find values in an apartment building, an appraiser may review the costs associated with running the building. It’s openly discussed that by decreasing the costs, the ____________ of the building would go ____________?
Value, UP
Value, DOWN
Costs, DOWN
Costs, UP
Value, UP
Appraisals, GRM, Appreciation and Depreciation Math:
Buyers and Sellers are always concerned with price. Agents have to be prepared to understand that prices fluctuate and although usually tend to increase, they sometimes do in fact decrease.
Remember! Never adjust the subject – Always adjust the ______! If the comparable is better than the subject, subtract value from the comparable. If the comparable is worse than the subject, add value to the comp.
Comparable Property
Appraisals, GRM, Appreciation and Depreciation Math:
A minimum of 4 properties must be used in a gross rent multiplier. If rent was $1200 a month what would the house value be?
- House 1 Salesprice = $225,000 ÷ monthly rent of $1450.000 = GRM 155.2
- House 2 Salesprice = $209,000 ÷ monthly rent $1125.00 = GRM 185.8
- House 3 Saleprice = $190,000 ÷ monthly rent $1200.00 = GRM 158.3
- House 4 Saleprice = $200,000 ÷ monthly rent $1195.00 = GRM 167.4
- House 5 Saleprice = $175,000 ÷ monthly rent $900.00 = GRM 194.4
o Total GRM = 861.1 ÷ 5 = 172.2 AVG GRM
o 172.2 x 1,200 = $206,640
The house value would be $206,640
Appraisals, GRM, Appreciation and Depreciation Math:
Your sellers are prepared to list their home with you but want to know how much it has appreciated since they have owned it. They bought it for $124,000. Today you estimate it is
worth $178,000. How much has the home appreciated?
- $178,000 (new value) - $124,000 (old value) = $54,000 (change in value)
- $54,000 ÷ $124,000 = 43.5%
o The home has appreciated 43.5%
Appraisals, GRM, Appreciation and Depreciation Math:
Mary Rogers is your neighbor who is contemplating selling. She read that property has appreciated 5% per year for the past 4 years and feels now might be a good time to list. She
paid $310,000 for her property. What is her property worth now?
- $310,000 x (.05) = $15,500 appreciation in year one
- $310,000 + $15,500 = $325,500 at end of year one
- $325,500 x (.05) = $16,275 appreciation in year two
- $325,500 + $16,275 = $341,775 at end of year two
- $341,775 x (.05) = $17,089 appreciation at end of year three
- $341,775 + $17,063 = $358,864 at end of year three
- $358,864 x (.05) = $17,943 appreciation at end of year four
- $358,864 + $17,943 = $376,807 at end of year four
o Her property is now worth $376,807
Appraisals, GRM, Appreciation and Depreciation Math:
A recent appraisal states that a homes value has increased 120% of the original price. If the
homes current value was $400,000, what was the value of the home when it was purchased?
- $400,000 ÷ 1.20 (120%) = $333,333
o Note, the T formula won’t work on this type of question.
o If trying to find the old value, the answer will be less than the current value if it’s an Appreciation question.
o If trying to find the old value, the answer will be greater than the current value if it’s a Depreciation question.
The value of the home when it was purchased was $333,333
Appraisals, GRM, Appreciation and Depreciation Math:
A distraught seller knows his home is currently worth $90,000 and he paid $140,000 for it years ago. How much has it depreciated expressed as a percentage?
- $140,000 - $90,000 = $50,000
- $50,000 ÷ $140,000 = 35.7% (.357)
o Work the problem backwards In the T
o $140,000 x .357 = $50,000
The home has depreciated 35.7%
Appraisals, GRM, Appreciation and Depreciation Math:
A post office building has been appraised and according to the appraiser, it’s valued at $175,000 and the depreciation rate is 12%. Using these facts, calculate the depreciated value of the building.
- $175,000 x .88 (88%) = $154,000
o Remember that it’s not 12% value, but 88% of it’s value you are looking for
The depreciated value of the home is now $154,000
Appraisals, GRM, Appreciation and Depreciation Math:
Determine the value of a residential property using an appraisers square footage method.
The cost of a building is $90 per sqft. The house is 1500sqft. The lot has a value of $15,000.
The site improvements cost $8500. There is a $1.40/sqft deduction for economic obsolescence. Due to the age of the building and having 7’ ceilings, there is a $1.10/sqft
deduction.
- 1500sqft x $90 = $135,000 (Building)
- $135,000 + $15,000 = $150,000 (Building + lot)
- $150,000 + $8,500 = $158,500 (Building + lot + Site Improvements)
- 1500 x $1.40 = $2,100 (Deduction for economic obsolescence)
- 1500 x $1.10 = $1,650 (Deduction for functional obsolescence)
- $158,500 - $2,100 - $1,650 = $154,750
o Final Appraised Value of $154,750
Appraisals, GRM, Appreciation and Depreciation Math:
An appraiser identified a comparable property for his appraisal. The subject property has 3 bedrooms, a pool and a 1 car garage. The comparable property recently sold for $240,000 and has 3 bedrooms, no pool and a 2 car garage. Assuming a pool has a $10,000 value and a 2 car garage is worth $5,000, what is the adjusted value of the comparable?
- $240,000 + $10,000 (pool) - $5,000 (2 car garage) = $245,000
o Remember – if the comp is better, you deduct that value to the comparable
o Remember – if the comp is worse, you add that value to the comparable
The adjusted value of the comparable is $245,000
Appraisals, GRM, Appreciation and Depreciation Math:
Subject is a 4 bed, 3 bath with a pool. Comp A is a 3 bed, 3 bath, NO pool and sold for $190,000. Comp B is a 4 bed, 4 bah, WITH pool and sold for $200,000. Comp C is a 5 bed, 2
bath, WITH pool and sold for $210,000. Using a sales comparison approach, what is the value
of the subject property knowing that a pool is worth $15,000, a Bathroom is $5,000 and a Bedroom has a value of $10,000. (Grid Added to explain how this will look when written out
on paper)
Subject Comp A Comp B Comp C
4 Bed 3 Bed 4 Bed 5 Bed
3 Bath 3 Bath 4 Bath 2 Bath
Pool No Pool Pool Pool
??? $190,000 $200,000 $210,000
After drawing out the grid, we can do the math needed to answer this question:
* Comp A = $190,000 + $10,000 (bedroom) + $15,000 (pool) = $215,000
* Comp B = $200,000 - $5,000 (Bath) = $195,000
* Comp C = $210,000 - $10,000 (Bed) + $5,000 (Bathroom) = $205,000
* Add all 3 properties $215,000 + $195,00 + $205,000 = $615,000
* $615,000 ÷ 3 comps = $205,000
o The subject property has an adjusted value of $205,000!
