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Illinois Real Estate > Unit 19 - Real Estate Appraisal > Flashcards

Unit 19 - Real Estate Appraisal Flashcards

1
Q

Define an appraisal?

A

An opinion of value based on supportable evidence and approved methods

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2
Q

What law are appraisals required to follow?

A

The Uniform Standards of Professional Appraisal Practice (USPAP)

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3
Q

Illinois recognizes what 3 categories of appraisers?

A
  1. Associate Real Estate Trainee
  2. Certified Residential Real Estate Appraisal
  3. Certified General Real Estate Appraisal
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4
Q

A comparative market analysis can be done by who?

A

A real estate licensee

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5
Q

What is a CMA based on?

A
  1. Recently closed properties
  2. Properties currently on the market
  3. Properties that did not sell
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6
Q

Define a Brokers Price Opinion?

A

A less expensive alternative of valuating properties often used by lenders

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7
Q

Define Value?

A

Monetary worth based on desirability

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8
Q

What are the 4 characteristics of value?

A
  1. Demand
  2. Utility
  3. Scarcity
  4. Transfer-ability
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9
Q

Define the Market Value of a property?

A

The most probable price that a property should bring in a fair sale

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10
Q

What is the difference between Market Value & Market Price?

A

Market Value is an opinion value based on an analysis of date.
Market Price is what a property actually sells for-its sales price.

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11
Q

What affects value of real estate?

A
  1. Anticipation
  2. Change
  3. Competition
  4. Conformity
  5. Contribution
  6. Highest and Best Use
  7. Plottage
  8. Regression and Progression
  9. Substitution
  10. Supply and Demand
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12
Q

Define Anticipation

A

When value is created by the expectation that certain events will occur

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13
Q

Define Change

A

The principle that no physical or economic condition will remain constant

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14
Q

Define Competition

A

The interaction of supply and demand

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15
Q

Define Conformity

A

When maximum value is created when a property is in harmony with its surroundings

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16
Q

Define Contribution

A

When the value of any part of a property is measured by its effect on the value as a whole

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17
Q

Define Highest and Best Use

A

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

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18
Q

Define the Law of Increasing Returns

A

Applies as long as the money spent on improvements produces and increase in income or sale

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19
Q

Define the Law of Diminishing Returns

A

Applies at a point where additional improvements do not increase income or value

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20
Q

Define Plottage

A

A principle that holds when merging adjacent lots into a single larger one produces a greater land value

21
Q

Define Regression

A

When the worth of a better quality property is affected by the presence of a lesser quality property

22
Q

Define Progression

A

When the value of a modest home would be higher if it were located among larger, fancier properties

23
Q

Define Substitution

A

When the maximum value of a property tends to be set by how much it would cost to replace it

24
Q

Define Supply and Demand

A

A principle that holds that the value of a property depends on the number of properties available

25
Q

To arrive at an accurate opinion of value, appraisers use which 3 valuation techniques

A
  1. Sales Comparison Approach
  2. Cost Approach
  3. Income Approach
26
Q

Define the Sales Comparison Approach

A

An estimate of value by comparing the property being appraised with recently sold properties

27
Q

What are the 6 elements of comparison in a Sales Comparison Approach?

A
  1. Financing Concessions
  2. Market Conditions
  3. Conditions of Sale
  4. Market Conditions since the date of sale
  5. Location
  6. Physical features/Amenities
28
Q

The cost approach is based on what?

A

Substitution and uses the reproduction cost and replacement cost

29
Q

What is the difference between the reproduction cost and replacement cost?

A

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

30
Q

What are the 4 ways to determine a reproduction or replacement cost?

A
  1. Square Foot Method
  2. Unit in Place Method
  3. Quantity Survey Method
  4. Index Method
31
Q

Define the Square Foot Method

A

The cost per square foot of a recently built comparable is multiplied by the number of square feet

32
Q

Define the Unit in Place Method

A

The replacement cost is estimated based on the construction cost per unit of measure of individual building components

33
Q

Define Quantity Survey Method

A

The quantity and Quality of all material and the labor are estimated on a unit cost basis

34
Q

Define the Index Method

A

A factor representing the percentage increase of construction costs up to the present time is applied to the original cost of the property

35
Q

Define Depreciation

A

A loss in value due to any cause, its considered curable or incurable

36
Q

Define Physical Deterioration

A

A curable item that is need of repair and economically feasible

37
Q

Define Functional Obsolescence

A

Means a loss in value from the markets response top the item ie. outdated or unacceptable features

38
Q

Define External Obsolescence

A

Is caused by negative factors not on the subject property ie. zoning, environmental/social/economic forces

39
Q

Define Economic Life

A

The period during which something is expected to remain useful for its intended purpose

40
Q

Define the Income Approach

A

Is based on the present value of the rights to future income

41
Q

What types of properties is the Income Approach used for?

A

Apartment Buildings, Offices and Shopping Centers

42
Q

How do you calculate the Net Operating Income (NOI)?

A

Deduct the annual operating expenses from the effective gross income

43
Q

Define Capitalization Rate

A

The rate of return that an investor will demand for the investment of capital in a type of building

44
Q

How do you calculate value?

A

Income divided by rate

45
Q

How do you find the rate?

A

Income multiplied by value

46
Q

How do you find the income?

A

Value multiplied by rate

47
Q

When is a Gross Rent Multiplier used?

A

When a buyer is interested in purchasing a one to four unit residential property

48
Q

When is a Gross Income Multiplier used?

A

When a buyer is interested in purchasing five or more units

49
Q

Define Reconciliation

A

The act of analyzing and effectively weighing the findings from the three approaches

Illinois Real Estate (24 decks)

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