Unit 16 Real Estate Appraisal Flashcards
What is an appraisal?
An opinion of value based on supportable evidence and approval methods.
What is a Competitive Market Analysis?
A report prepared by a licensee which shows a range of prices to help the seller maximize their return at the time of sale.
What is a Broker Price Opinion?
An opinion prepared by a licensee that is less-expensive alternative to an appraisal typically for a lender.
What are the 4 characteristics value?
The monetary worth based on 4 characteristics: Demand Utility Scarcity Transferability
What is market value?
A reasonable opinion of a property’s worth.
The most likely sales price.
What is a market price?
The actual selling price of a property.
What are the basic principles of value?
Anticipation Change Competition Conformity Contribution Highest & Best Use Plottage Regression & Progression Substitution Supply & Demand
What is plottage?
The individual value of two adjacent properties may be greater if they are combined than if each is sold separately.
What is the law of increasing returns?
Money spent on improvements produces an increase in income or value.
What is the law of diminishing returns?
At a point where additional improvements do not increase income or value.
What are 3 approaches of appraisal?
1-Sales Comparison Approach
2-Income Approach
3-Cost Approach
What is the Sales Comparison Approach?
Aka, Market Data Approach. Determining value by comparing the subject property to recently sold comparable properties. Based on Substitution price is adjusted to reflected impact of difference.
Considered most reliable for SFH
What is the Cost Approach?
Determining value by the principle of substitution. 5 Steps
1-Value of vacant land
2-Current cost of Constructing Building
3-Accrued Depreciation
4-Subtract Accrued Depreciation from Current Cost
5-Add Land Value
What is depreciation?
Loss of value for any cause.
1-Physical
2-Functional
3-External
What is physical deterioration?
Actual deterioration of the building. Curable means worth fixing, incurable the cost isn’t worth the investment based on value.
What is functional obsolescence?
The building has outlived its usefulness to the market. examp 4 bd 1 bth
What is external obsolescence?
Caused by negative factors not on the subject property, ie environmental, social, or economic, they are incurable.
What is net operating income?
Aka NOI, Gross Income-Expenses = Net Income
What is a capitalization rate?
Rate of return, NOI/Price.
What does capitalization mean?
The present value of future income.
What is a gross rent multiplier?
Appraisal value for 1-4 unit properties.
Sales Price/Monthly Gross Rent = GRM
What is gross income multiplier?
Appraisal value for commercial units 5 or more units.
Sales Price/Annual Gross Income = GIM
What is reconciliation?
The act of analyzing and weighing the findings from the 3 approaches.
What is PIW?
Property Inspection Waiver loans in Fannie Mae that eligible to use previous appraisal for current use.
What is USPAP?
Uniform Standards for Professional Appraisal Practice, established by the appraisals standard board.
What is AIR?
Appraisal Independence Requirements, Fannie Mae Initiated act to keep appraisals more independent.
What is the appraisal process?
1-Define the Problem 2-Determine the Scope of Work 3-Approaches - General Data, Specific, Data for Each Approach 4-Form Opinion by each of 3 Approaches 5-Reconcile Value for Final Opinion 6-Report Opinion
What is the process of the Income Approach?
Gross Income Vacancy Expenses Net Operating Income
GIVEN
