Section 7: Overview of Real Estate Valuations

Question 1

Calculating Depreciation

Answer 1

Annual Depreciation Rate = 1 / num of years to depreciate

Annual Depreciation Amount = original value * depreciation rate

New value = original value - (depreciation amount * # of years)

Question 2

Licensee Margie is getting ready to list a new property. Which window of time is most important for garnering buyer interest?

Answer 2

The first few weeks

Question 3

Quality of amenities, climate, and topography are examples of which force that influences property value?

Answer 3

Physical/environmental

Question 4

What is a benefit of pricign a property correctly?

Answer 4

The price is more likely to match the appraisal

Question 5

Political & Government forces affecting value

Answer 5

• Zoning laws
• Building codes and fire regulations
• Rent controls
• Fiscal and monetary policies
• Government-guaranteed loans and housing
• Environmental legislation

Question 6

Economic forces affecting value

Answer 6

• Interest rates
• Employment trends and wages
• Rent and price patterns
• Credit/loan availability
• Development, industrial, and commercial trends

Question 7

Social forces affecting value

Answer 7

• Population growth or decline
• Marriage, divorce, birth, and death rates
• Attitudes toward education, recreation
• Ideals about family size

Question 8

Physical & environmental forces affecting value

Answer 8

• 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

Question 9

DUST: Four Significant Factors that Influence
Value

Answer 9

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

Question 10

What is reconciliation?

Answer 10

The final estimate of value based on results of the appraiser’s approaches to value

Question 11

A certified general real property appraiser must have which one of the following?

Answer 11

The ability to appraise any residential or non-residential property, regardless of value or complexity

Question 12

This could happen if a factory were put in next door that changed and impacted property value.

Answer 12

External obsolescence - Outside influences on value can lead to external obsolescence, which is incurable.

Question 13

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?

Answer 13

Principle of competition

Question 14

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?

Answer 14

Substitution

Question 15

Which of the following approaches to value uses a capitalization rate?

Answer 15

Income approach

Question 16

Before trainees can become licensed appraisers, who must they work under?

Answer 16

A certified appraiser

Question 17

Which factor that influences value considers the property’s function?

Answer 17

Utility

Question 18

Steps taken in the appraisal reconciliation process

Answer 18

1. appraisers review work done on project to make sure data is correct.
2. Use best judgment to arrive at a final estimate

Question 19

Three Appraisal Valuation Approaches

Answer 19

1. Sales comparison approach
2. Cost approach
3. income approach

Question 20

Appraiser’s 3 C’s

Answer 20

• 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

Question 21

Appraisal sales comparison approach

Answer 21

Used for:
* Residential single family
* Owner-occupied
* Vacant land

• Similar to a CMA
• Makes adjustments for dissimilar items (e.g. pool)

Question 22

Appraisal’s Principle of Substitution

Answer 22

Buyer will not pay more for one property than he’d pay for another one just like it.

Question 23

Appraisal cost approach

Answer 23

• 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

Question 24

Appraisal Income Approach

Answer 24

• 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.