Unit 14-Real Estate Appriasal Flashcards
What is “the act or process of developing an opinion of value”?
Appraisal
List the 7 steps in the appraisal process:
1) state the problem, 2) list the data needed & the sources, 3) gather/record/verify the necessary data, 4) determine the highest and best use, 5) estimate value by each of the 3 approaches, 6) reconcile the indicated values for the final opinion value, 7) report the final opinion of market value with certification and signature
What are the 3 approaches to estimate value?
Cost approach, sales comparison approach, income approach
What are the 4 characteristics of value?
DUST
Demand
Utility
Scarcity
Transferability
What is market value?
The most probable price a property should bring in a competitive and open market - not the average price, highest price, or lowest price.
An estimated price based on an analysis of comparable sales and other pertinent market data.
What is market price?
What a property actually sells for. The selling price.
What are the 11 economic principles that affect the value of real estate?
Highest and best use Substitution Supply & demand Conformity Externalities Anticipation Increasing and diminishing returns Plottage value Contribution Competition Change
The most probable use to which a property is suited that will result in its “highest value”. For example, a parking lot in a busy downtown area may not maximize the land’s profitability to the same extent as an office building.
Highest & best use
The maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property. For example, if two similar houses were for sale in an area, the one with the lower asking price normally would be purchased first.
Substitution
Maximum value is realized if the use of land confirms to existing neighborhood standards. For example, the biggest house on the block tends to lose value to its neighbors; it is said to be overbuilt for the neighborhood.
Conformity
Influences outside a property may have a positive or negative effect on its value. For example, the federal government’s participation in interest rate levels, mortgage loan guarantees, slum clearance, and rehabilitation has a powerful impact on stimulating or regarding supply and demand.
Externalities
Value can increase or decrease in anticipation of some future benefit or detriment affecting the property. For example, the value of a house may be affected by rumors that an adjacent property may be converted to commercial use in the near future.
Anticipation
Improvements to land and structures eventually will reach a point at which they no longer have a positive net effect on property values.
Increasing returns- as long as money spent on improvements produced an increase in income or value.
Diminishing returns- additional improvements product no proportionate increase in income or value
Increasing and diminishing returns
The increased utility and value resulting from the combining or consolidating of adjacent pots into one larger lot
Plottage value
The amount it contributes to the value of the whole of the amount its absence detracts from that value.
Contribution
Excess profits tend to attract competition. For example, the success of a retail store may attract 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 increases substantially.
Competition
