Unit 19 Flashcards
Appraisal
Opinion of value based on circumstances of property and approved methods.
Based on SOLD properties to estimate market value
in IL appraisers are licensed
3 categories of Appraisers:
associate real estate trainee appraiser - entry level and must be co-signed
certified residential - qualified to appraisal residential units 1-4 units
certified general - qualified to appraise all types of real property
Paperwork
Must retain all contacts and reports for no less than 5 years or 2 years after judicial proceeding disposition, which is longer
CMA
Based on similar properties SOLD, on the market and expireds
Broker’s Price Opinion (BPO)
less expensive way to value properties (Used to Freddie Mac and Fannie Mae). Licensees perform BPOs for a fee
Characteristics of Value
- Demand
- Utility - usefulness
- Scarcity - a finite supply
- transferability
Anticipation
expectation that certain events will occur effecting the value. Foundation on which income approach is based
Competition
interaction of supply and demand
Valuation Techniques
- Sales Comparison Approach
- Cost Approach
- Income Approach
Conformity
Maximum value created when property is in harmony with surroundings
Plottage
The value in merging lots
Assemblage
Merging lots
Contribution
value of a part of the property is measured by its effect on the value of the whole
Increasing and decreasing returns
Addition of improvements increases total value only to assets maximum value
Regression and Progression
Regression - value of better-quality adversely affected by lesser-quality
Progression - value of lesser-quality positively affected by better-quality
Substitution
Maximum value set by how much it would cost to purchase an equally desirable and valueable property
Used in Sales Comparison and Cost Approach
Sales Comparison Approach
Single Family Homes
Use Market Data
Use SOLDS/Comps
Prefer properties sold within 6 months and within 1 mile
Adjustments made based on -property rights financing concessions market conditions conditions of sale market conditions since date of sale location physical features and amenities
Cost Approach
Newer or special purpose buildings, schools, churches- used when not a lot of comps and the properties don’t generate income
- estimate value of land (75,000)
- current construction cost (150,000)
- accrued depreciation (25,000)
Current construction cost - accrued depreciation + land value = Estimated value
150,000-25,000+75,000 = 200,000
Reproduction Cost
Construction of exact duplicate at current prices
Replacement Cost
Construction of similar property not exact
Commute Cost Approach by:
square foot
unit in place
quantity-survey
index
Depreciation
Loss in Value
Land cannot depreciate
3 Classes:
physical - curable painting
incurable - foundation crack
functional obsolescence
external obsolescence - zoning, environrental
Straight Line Depreciation
improvement value / expected life (total years) = depreciation
Income Approach
Apartment buildings, office buildings, shopping centers
Value based on present value of the rights to future income
Includes anticipation
CAPITALIZATION RATE is used to take income and estimate the property’s value
income / value = capitalization rate
24,000/300,000 = 8%
Gross Rent Multiplier vs Gross Income Multiplier
Gross Rent 1 -4 units
sales price / gross monthly rent = GRM
rental income x GRM = estimated market value
Gross Income 5 or more units
sales price / gross annual income = GIM
Appraisers need 4 comparable properties
Reconciliation
act of analyzing the findings of the 3 different approaches
Appraisal Report
Report that verifies the value indicated by the market
