Unit 6: Appraisals, Value, Principles of Value Flashcards
What is an appraisal?
An estimate or opinion of market value supported by an analysis of relevant property data.
T/F Appraisals are less accurate than a CMA or a broker’s price opinion.
False. Appraisals are MORE accurate than a CMA or a broker’s price opinion.
What is market value?
The most probable price that a property will bring.
What is market price?
The actual price paid in a transaction.
What are the 4 elements that a property needs to ensure value?
1) Demand
2) Utility
3) Scarcity
4) Transferability
What are the economic principals that effect an appraisal?
TBD
What are the methods of estimating market value?
1) Sales Comparison Approach (market data)
2) Cost Approach
3) Income Approach
When would an appraiser use the sales comparison approach (market data)?
For residential and vacant lots.
Which approach uses paired analysis of properties?
Sales Comparision Approach (market data)
What appraisal approach would be used for special purpose, churches, schools, and new construction properties?
Cost Approach
What kind of loan is an appraisal not required?
Seller-carry loans
T/F Appraisals are required for all federally-related loans (conventional, FHA, VA)
True
T/F Adjustments are made ONLY to the comparable’s prices, not to the subjects.
True
What action is taken when the comparable feature is better than the subject?
Subtract
What action is taken when the comparable feature is worse than the subject?
Add
T/F The estimate of value that an appraiser gives is an average of the value estimates.
False. The estimate of value is NOT an average of the values. It is a final estimate.
What are the steps in an appraisal process?
1) State the purpose.
2) List the data needed.
3) Gather the data
4) Analyze the data
5) Determine the final estimate
What does an appraiser do during the reconciliation process?
Analyzes and weighs the 3 approaches to determine the final value.
T/F Appraisers must follow the Uniform Standards of Professional Appraisal Practice.
True
The following example is what kind of appraisal technique: The value of a fireplace would be determined by the difference between the sales of comparable homes with and without a fireplace.
Paired Sales Analysis
What appraisal approach will an appraiser use when there are no comparables and the property does not bring in any income?
The Cost Approach
What is the cost approach formula?
cost to build new - accrued depreciation + land value
What is another word for depreciation?
Obsolescense
What are the 3 types of depreciations?
1) Physical
2) Functional
3) Economic
What are functional depreciations?
Inadequate or outdated equipment. For example, poor floor plans.
What is another name for economic depreciations?
External obsolescence
T/F Functional and economic depreciations are curable.
False. Functional and economic depreciations are NOT curable. Physical depreciations ARE curable.
The cost approach takes into account the reproduction and/or replacement costs. What is the difference between the two?
Reproduction cost is the cost of constructing a replica (the exact duplicate) using the same materials as the original.
Replacement cost is the cost of constructing the building with the same utility but with modern materials and construction methods.
What kinds of properties is the income approach used?
Properties that generate income like apartment buildings, shopping centers, office building, etc.
What is the most important principle in appraisals?
Substitution.
What is substitution?
The maximum value of property is set by how much it would cost to obtain another equally desirable property.
What are the 6 economic principles that affect a properties value?
1) Highest & Best Use
2) Anticipation
3) Supply and Demand
4) Substitution
5) Conformity
6) Contribution
T/F Based on the principle of substitution, if several similar properties are for sale, the lowest-priced property as the least demand.
False. Based on the principle of substitution, if several similar properties are for sale, the lowest-priced property as the greatest demand.
T/F Based on the principle of conformity, regression is when the value of over-improved properties increases.
False. Based on the principle of conformity, regression is when the value of over-improved properties decreases.
Big house among small houses.
T/F Based on the principle of conformity, progression is when the value of under-improved property increases.
True
What is the difference between increasing and decreasing returns?
Increasing returns are improvements that add more value than what they cost. The opposite is decreasing returns, improvements add less value than what they cost.
