Unit 19 - Real Estate Appraisal Flashcards
Define an appraisal?
An opinion of value based on supportable evidence and approved methods
What law are appraisals required to follow?
The Uniform Standards of Professional Appraisal Practice (USPAP)
Illinois recognizes what 3 categories of appraisers?
- Associate Real Estate Trainee
- Certified Residential Real Estate Appraisal
- Certified General Real Estate Appraisal
A comparative market analysis can be done by who?
A real estate licensee
What is a CMA based on?
- Recently closed properties
- Properties currently on the market
- Properties that did not sell
Define a Brokers Price Opinion?
A less expensive alternative of valuating properties often used by lenders
Define Value?
Monetary worth based on desirability
What are the 4 characteristics of value?
- Demand
- Utility
- Scarcity
- Transfer-ability
Define the Market Value of a property?
The most probable price that a property should bring in a fair sale
What is the difference between Market Value & Market Price?
Market Value is an opinion value based on an analysis of date.
Market Price is what a property actually sells for-its sales price.
What affects value of real estate?
- Anticipation
- Change
- Competition
- Conformity
- Contribution
- Highest and Best Use
- Plottage
- Regression and Progression
- Substitution
- Supply and Demand
Define Anticipation
When value is created by the expectation that certain events will occur
Define Change
The principle that no physical or economic condition will remain constant
Define Competition
The interaction of supply and demand
Define Conformity
When maximum value is created when a property is in harmony with its surroundings
Define Contribution
When the value of any part of a property is measured by its effect on the value as a whole
Define Highest and Best Use
The most profitable single use to which the property may be put, or the use that is most likely to be in demand in the near future
Define the Law of Increasing Returns
Applies as long as the money spent on improvements produces and increase in income or sale
Define the Law of Diminishing Returns
Applies at a point where additional improvements do not increase income or value
Define Plottage
A principle that holds when merging adjacent lots into a single larger one produces a greater land value
Define Regression
When the worth of a better quality property is affected by the presence of a lesser quality property
Define Progression
When the value of a modest home would be higher if it were located among larger, fancier properties
Define Substitution
When the maximum value of a property tends to be set by how much it would cost to replace it
Define Supply and Demand
A principle that holds that the value of a property depends on the number of properties available
To arrive at an accurate opinion of value, appraisers use which 3 valuation techniques
- Sales Comparison Approach
- Cost Approach
- Income Approach
Define the Sales Comparison Approach
An estimate of value by comparing the property being appraised with recently sold properties
What are the 6 elements of comparison in a Sales Comparison Approach?
- Financing Concessions
- Market Conditions
- Conditions of Sale
- Market Conditions since the date of sale
- Location
- Physical features/Amenities
The cost approach is based on what?
Substitution and uses the reproduction cost and replacement cost
What is the difference between the reproduction cost and replacement cost?
Reproduction cost is the construction cost at current prices of an exact duplicate
Replacement cost is the cost to construct an improvement similar but not an exact duplicate
What are the 4 ways to determine a reproduction or replacement cost?
- Square Foot Method
- Unit in Place Method
- Quantity Survey Method
- Index Method
Define the Square Foot Method
The cost per square foot of a recently built comparable is multiplied by the number of square feet
Define the Unit in Place Method
The replacement cost is estimated based on the construction cost per unit of measure of individual building components
Define Quantity Survey Method
The quantity and Quality of all material and the labor are estimated on a unit cost basis
Define the Index Method
A factor representing the percentage increase of construction costs up to the present time is applied to the original cost of the property
Define Depreciation
A loss in value due to any cause, its considered curable or incurable
Define Physical Deterioration
A curable item that is need of repair and economically feasible
Define Functional Obsolescence
Means a loss in value from the markets response top the item ie. outdated or unacceptable features
Define External Obsolescence
Is caused by negative factors not on the subject property ie. zoning, environmental/social/economic forces
Define Economic Life
The period during which something is expected to remain useful for its intended purpose
Define the Income Approach
Is based on the present value of the rights to future income
What types of properties is the Income Approach used for?
Apartment Buildings, Offices and Shopping Centers
How do you calculate the Net Operating Income (NOI)?
Deduct the annual operating expenses from the effective gross income
Define Capitalization Rate
The rate of return that an investor will demand for the investment of capital in a type of building
How do you calculate value?
Income divided by rate
How do you find the rate?
Income multiplied by value
How do you find the income?
Value multiplied by rate
When is a Gross Rent Multiplier used?
When a buyer is interested in purchasing a one to four unit residential property
When is a Gross Income Multiplier used?
When a buyer is interested in purchasing five or more units
Define Reconciliation
The act of analyzing and effectively weighing the findings from the three approaches
