Unit 16 - part 1 Flashcards
appraisal
appraisal report
appraiser
An appraisal is an opinion of value based on supportable evidence and approved methods.
An appraisal report is an opinion of market value on a property given to a lender or client with detailed market information.
An appraiser is an independent professional trained
Dodd-Frank Act and changes to the Truth in Lending Act (TIL)
Fannie Mae initiated Appraiser Independence Requirements (AIR)
The Dodd-Frank Act required changes to the Truth in Lending Act to prohibit the coercion (ubedjivanje, prisila) and other activities that influenced appraisals in many cases of fraud.
Fannie Mae initiated Appraiser Independence Requirements (AIR) that took effect October 15, 2010.
comparative market analysis (CMA)
Real estate professionals often prepare a comparative market analysis (CMA) for a seller or buyer.
The CMA focuses on properties similar to the subject property in size, location, and amenities for the purpose of deriving a likely listing price or offering price.
The CMA analysis is based on
• recently closed properties (solds),
• properties currently on the market
• properties that did not sell (expired listings in the area).
CMA is NOT an appraisal.
Broker’s Price Opinion (BPO)
A broker’s price opinion (BPO) is a less-expensive alternative of evaluating property that is often used by lenders working with home equity lines, refinancing, collections.
BPO is NOT an appraisal.
Characteristics of value:
To have value in the real estate market - a property must have the following characteristics, which can be remembered as DUST:
- Demand - the need or desire for possession or ownership backed by the financial means to satisfy that need
- Utility - the property’s usefulness for its intended purposes
- Scarcity - a finite or limited supply
- Transferability - ease with which ownership rights are transferred from one person to another
Market value and price
Market value is considered the most probable price that a property should bring in a competitive and open market.
Market price is property’s asking offer or sale price.
Cost
One of the most common misconceptions about valuing property is that its cost represents its market value.
Cost and market value may be the same. When the improvements on a property are new, cost and value are likely to be equal. But more often, cost does not equal market value.
(ex. adding a swimming pool may cost $30K, but it doesn’t add 30K to property value.)
Basic Principles of Value
Anticipation - value is created by the expectation that certain events will occur.
Change - no physical or economic condition remains constant; RE is subject to natural phenomena such as tornadoes, fires, and routine wear and tear.
Competition - the interaction of supply and demand.
Conformity - maximum value is created when a property is in harmony with its surroundings.
Contribution - the value of any part of a property is measured by its effect on the value of the whole parcel.
Increasing and Diminishing Returns
Increasing return - money spent on improvements produces increase of income or value
Diminishing return - money spent on improvements doesn’t increase income or value
Plottage and assemblage
The principle of plottage is in evidence when the consolidation of adjacent lots into a single larger one produces a greater total land value than the sum of the two sites valued separately.
The process of merging two separately owned lots under one owner is known as assemblage .
Plottage is the amount that the value of the combined properties is increased by successful assemblage.
Regression and Progression
Regression - lower quality home brings down value of nicer homes. The worth of a better-quality property is adversely affected by the presence of a lesser-quality property.
Progression - rises value of lower quality properties. The value of a modest home would be higher if it were located among larger, fancier properties.
Substitution
According to the principle of substitution, the maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property.
Supply and Demand
The value of a product depends on the supply - the number of such products available in the market.
When the supply of similar properties increases, their value decreases and when demand for such properties increases, their value increases.
