Unit 16 - Real Estate Appraisal

Question 1

CMA

Answer 1

Comparative market analysis

Question 2

Appraisal report

Answer 2

Opinion of market value with market info

Service done for fee

Question 3

Dodd Frank Act

Answer 3

Truth in lending - changes made

Stop coercion

Question 4

Appraiser independence requirements

Answer 4

Guideline by Fannie Mae on appraising

Question 5

FIRREA

Answer 5

Organization that says appraisers and RE PROF. Need to be regulated separately

If property is $250k or less, you don’t need an appraisal

Question 6

Uspap.org

Answer 6

Appraisal standards board

Question 7

Subject property

Answer 7

Property being appraisal

Question 8

Broker price opinion

Answer 8

BPO

Lenders working with Home Equity Loans

Refinancing
Portfolio management
Loss mitigation
Collections

RE professionals can conducts BPO for some groups like Freddie Mac and Fannie Mae for a fee

Question 9

Appraisal process

Answer 9

1 identity the problem
2 determine the scope of work
3 gather record and verify data
General/Spey/data for approach

4 analyze data/ determine highest and best use
5 estimate land value/ form opinion
Use one of Three approaches
Estimate value for final opinion (reconciliation)

Question 10

Reconciliation

Answer 10

Appraiser goes over data from three approaches

Question 11

Uniform residential appraisal report

Answer 11

Extensive list of detailed info that an appraisal report requires

Question 12

Characteristics of Value

Answer 12

Demand
Utility - usefulness
Scarcity - how much is there
Transferability- can it be sold

DUST

Question 13

Determine market value

Answer 13

Buyer and seller are unrelated and acting without pressure

Everyone is informed on use, potential defects and advantages

Payment must be in cash or equivalent

No other cost ( fees ect)

Question 14

Market value

Answer 14

Most probable price that a property should bring in fair sale

Question 15

Market price

Answer 15

What a property actually sells for

Question 16

Cost

Answer 16

Cost off adding something to property doesn’t always reflect value

Money spent

Question 17

Basic principle of value

Answer 17

Anticipation- anticipate value in everything we do. Changes value to you (me)

Change- no physical or economical remain constant

Competition - interact between supply and demand

Conformity- property increases in value when it’s in harmony with it surroundings

Contribution- you can overbuild and not increase in value

Highest and best use - legally permitted, financially feasible, physical possible, maximally productive

Increasing and diminishing returns- hit maximum value, no more value can be added

Plottage/assemblage-smaller land worth less, merging plots to increase value

Question 18

Regression and progression

Answer 18

Value on property going up or down due to your neighbors

Question 19

Substitution

Answer 19

house value depends on if another can substitute in it place for same value

Question 20

3 approaches to value

Answer 20

Sales comparison approach or market data approach

Cost approach

Question 21

Sales comparison approach or market data approach

Answer 21

Done by us- CMA

comparing sold property

Subject property vs comparable properties

Property rights- if you don’t have absolute fee simple, it affects the value / bundle of rights

Financial concessions - must adjust based of financing terms

Market conditions - market need to be in same condition as when the property was sold

Condition of sale- how it was sold, foreclosure, to a friend

Date of sale- when was the property sold
Location - where the property is

Physical features and amenities- bed and bath and other

Question 22

The cost approach

Answer 22

Comparing property or showing the cost of building/materials

Not comparing like properties

Reproduction cost vs replacement cost

Square foot method - multiply a price per square foot

Unit in place method- builders profit. Valued estimated base of individual components of a building structure (labor, materials, ect)

Quantity survey method- precise method, accounts for quantity and quality of all materials. Labor estimated on unit cost basis. Usually used on historical buildings

Index method - used percentage rate of construction cost. Not a stand alone system, checks the other methods

Depreciation- loss of value. 3 types
- physical deterioration : curable- can at fix it economically feasible and result in increase value(ex paint)/ incurable- can’t be fixed with cost

• functional obsolescence: has a functional use. Curable or in curable
• External obsolescence is always incurable. Not in my ownership. Ex Neighbors lawn , crime rate

-separate value of land from structure/ land does not depreciate
-replacement cost of structure
-depreciate to its current condition
SRD

Question 23

Income approach

Answer 23

Income generating property/ rental property

Annual potential income - estimate of what you can make

Effective gross income- deduct rent loss, and vacancy possibilities

Annual operating expenses - deduct operational expenses (mortgage not operating expenses)

Capitalization rate- cap rate. Estimating how much money your investor wants to make of property
- comparing net operating income with sales price of similar properties that have sold

Question 24

Mortgage

Answer 24

= debt service

Question 25

Accrued depreciation

Answer 25

Loss in value

Question 26

Economic life-

Answer 26

land itself is equal to what it’s on. Depreciation

Question 27

Straight line method

Answer 27

Cost approach

Depreciation

Going down equally