Section 7: Overview of Real Estate Valuations Flashcards
Calculating Depreciation
Annual Depreciation Rate = 1 / num of years to depreciate
Annual Depreciation Amount = original value * depreciation rate
New value = original value - (depreciation amount * # of years)
Licensee Margie is getting ready to list a new property. Which window of time is most important for garnering buyer interest?
The first few weeks
Quality of amenities, climate, and topography are examples of which force that influences property value?
Physical/environmental
What is a benefit of pricign a property correctly?
The price is more likely to match the appraisal
Political & Government forces affecting value
- Zoning laws
- Building codes and fire regulations
- Rent controls
- Fiscal and monetary policies
- Government-guaranteed loans and housing
- Environmental legislation
Economic forces affecting value
- Interest rates
- Employment trends and wages
- Rent and price patterns
- Credit/loan availability
- Development, industrial, and commercial trends
Social forces affecting value
- Population growth or decline
- Marriage, divorce, birth, and death rates
- Attitudes toward education, recreation
- Ideals about family size
Physical & environmental forces affecting value
- Quality of amenities
- Availability of schools, shopping, public transit, etc.
- Similarity of land used
- Physical hazards
- Barriers to future development
- Access to other areas/regions
- Climate
- Topography
DUST: Four Significant Factors that Influence
Value
Demand - How attractive and move-in ready? WHat’s market like?
Utility - Property’s function. Is it habitable? Need updating? Repairs?
Scarcity - Fewer properties increases scarcity
Transferability - easy that seller can sell the property
What is reconciliation?
The final estimate of value based on results of the appraiser’s approaches to value
A certified general real property appraiser must have which one of the following?
The ability to appraise any residential or non-residential property, regardless of value or complexity
This could happen if a factory were put in next door that changed and impacted property value.
External obsolescence - Outside influences on value can lead to external obsolescence, which is incurable.
What principle of value indicates that an investor’s thriving sporting goods store will attract others to open new sporting goods stores in the area, driving down the investor’s profits?
Principle of competition
Because 123 Main Street, which sold recently, is a comparable property, its sales price should be a good indicator of the value of 456 Elm. Which economic principle does this demonstrate?
Substitution
Which of the following approaches to value uses a capitalization rate?
Income approach
Before trainees can become licensed appraisers, who must they work under?
A certified appraiser
Which factor that influences value considers the property’s function?
Utility
Steps taken in the appraisal reconciliation process
- appraisers review work done on project to make sure data is correct.
- Use best judgment to arrive at a final estimate
Three Appraisal Valuation Approaches
- Sales comparison approach
- Cost approach
- income approach
Appraiser’s 3 C’s
- Principle of Contribution - a part of a property is valued according to its contribution to the value of the whole
- Principle of Competition - The more competition from simlar properties, the more downward pressure there is on pricing
- Principle of conformity - You get max value when improvements on a property keep it in the same ballpark as properties surrounding it
Appraisal sales comparison approach
Used for:
* Residential single family
* Owner-occupied
* Vacant land
- Similar to a CMA
- Makes adjustments for dissimilar items (e.g. pool)
Appraisal’s Principle of Substitution
Buyer will not pay more for one property than he’d pay for another one just like it.
Appraisal cost approach
- Used when a property is unique (e.g. movie theater)
- Uses a sales comparison of comparable pieces fo land (vacant value)
- Add in the cost of reconstructing the existing building
- Reproduction cost looks at making exact duplicate
- Replacement cost is cost of rebuilding today with today’s buildiing materials
- Appraisers factor in depreciation
- Physical depreciation - damaged property or wear and tear
- Functional obsolescence - descined poorly or outdated
- External depreciation - can’t be fixed, occurs when something bad is built beside the subject property
Appraisal Income Approach
- Used for income-producing properties like rentals or commercial property
- Converts net annual income into present value by appying capitalization rate.
- cap rate - Rate of return of other properties in the area
- Sometimes appraisers will use Gross Rent Multiplier = equals the market rent-usually a monthly rate-multiplied by the GRM.
What rule should you follow, if possible, when preparing a CMA?
Select comparables that have sold within the last 3 to 6 months
What is an opinion on a listing price range determined by comparing recently sold properties, current competing properties, and properties that didn’t sell?
Comparative Market Analysis (CMA)
When preparing a market analysis, or CMA, what’s the maximum number of adjustments you can
make to the subject property?
Zero
Properties that are similar to the subject property in terms of financing, conditions of sale, market
conditions, location, and physical characteristics are known as what?
Comparables
What describes the method for determining the indicated value of a subject property when a
licensee performs a market analysis?
Sales price of comparable +/- adjustments
As a general rule, it’s best to use comparables that are no more than _ old.
6 months
Adjusting comparables on a CMA
If the subject property has a valuable feature lacking in the comparable property,
adds this value to the comparable property’s sales price.
When performing a market analysis, given the adjusted sales prices of three comparables, which
comparable would you weigh most heavily?
The one that required less adjustment.
Finding comparables for a CMA
Find ones similar in size, condition and location to the subject
CMA’s Rule of 3
- Find 3 properties
- Sold in last 3 months
