Unit 16 - Real Estate Appraisal Flashcards
CMA
Comparative market analysis
Appraisal report
Opinion of market value with market info
Service done for fee
Dodd Frank Act
Truth in lending - changes made
Stop coercion
Appraiser independence requirements
Guideline by Fannie Mae on appraising
FIRREA
Organization that says appraisers and RE PROF. Need to be regulated separately
If property is $250k or less, you don’t need an appraisal
Uspap.org
Appraisal standards board
Subject property
Property being appraisal
Broker price opinion
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
Appraisal process
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)
Reconciliation
Appraiser goes over data from three approaches
Uniform residential appraisal report
Extensive list of detailed info that an appraisal report requires
Characteristics of Value
Demand
Utility - usefulness
Scarcity - how much is there
Transferability- can it be sold
DUST
Determine market value
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)
Market value
Most probable price that a property should bring in fair sale
Market price
What a property actually sells for
Cost
Cost off adding something to property doesn’t always reflect value
Money spent
Basic principle of value
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
Regression and progression
Value on property going up or down due to your neighbors
Substitution
house value depends on if another can substitute in it place for same value
3 approaches to value
Sales comparison approach or market data approach
Cost approach
Sales comparison approach or market data approach
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
The cost approach
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
Income approach
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
Mortgage
= debt service
Accrued depreciation
Loss in value
Economic life-
land itself is equal to what it’s on. Depreciation
Straight line method
Cost approach
Depreciation
Going down equally