Unit 6: Appraisals, Value, Principles of Value

Question 1

What is an appraisal?

Answer 1

An estimate or opinion of market value supported by an analysis of relevant property data.

Question 2

T/F Appraisals are less accurate than a CMA or a broker’s price opinion.

Answer 2

False. Appraisals are MORE accurate than a CMA or a broker’s price opinion.

Question 3

What is market value?

Answer 3

The most probable price that a property will bring.

Question 4

What is market price?

Answer 4

The actual price paid in a transaction.

Question 5

What are the 4 elements that a property needs to ensure value?

Answer 5

1) Demand
2) Utility
3) Scarcity
4) Transferability

Question 6

What are the economic principals that effect an appraisal?

Answer 6

TBD

Question 7

What are the methods of estimating market value?

Answer 7

1) Sales Comparison Approach (market data)
2) Cost Approach
3) Income Approach

Question 8

When would an appraiser use the sales comparison approach (market data)?

Answer 8

For residential and vacant lots.

Question 9

Which approach uses paired analysis of properties?

Answer 9

Sales Comparision Approach (market data)

Question 10

What appraisal approach would be used for special purpose, churches, schools, and new construction properties?

Answer 10

Cost Approach

Question 11

What kind of loan is an appraisal not required?

Answer 11

Seller-carry loans

Question 12

T/F Appraisals are required for all federally-related loans (conventional, FHA, VA)

Answer 12

True

Question 13

T/F Adjustments are made ONLY to the comparable’s prices, not to the subjects.

Answer 13

True

Question 14

What action is taken when the comparable feature is better than the subject?

Answer 14

Subtract

Question 15

What action is taken when the comparable feature is worse than the subject?

Answer 15

Add

Question 16

T/F The estimate of value that an appraiser gives is an average of the value estimates.

Answer 16

False. The estimate of value is NOT an average of the values. It is a final estimate.

Question 17

What are the steps in an appraisal process?

Answer 17

1) State the purpose.
2) List the data needed.
3) Gather the data
4) Analyze the data
5) Determine the final estimate

Question 18

What does an appraiser do during the reconciliation process?

Answer 18

Analyzes and weighs the 3 approaches to determine the final value.

Question 19

T/F Appraisers must follow the Uniform Standards of Professional Appraisal Practice.

Answer 19

True

Question 20

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.

Answer 20

Paired Sales Analysis

Question 21

What appraisal approach will an appraiser use when there are no comparables and the property does not bring in any income?

Answer 21

The Cost Approach

Question 22

What is the cost approach formula?

Answer 22

cost to build new - accrued depreciation + land value

Question 23

What is another word for depreciation?

Answer 23

Obsolescense

Question 24

What are the 3 types of depreciations?

Answer 24

1) Physical
2) Functional
3) Economic

Question 25

What are functional depreciations?

Answer 25

Inadequate or outdated equipment. For example, poor floor plans.

Question 26

What is another name for economic depreciations?

Answer 26

External obsolescence

Question 27

T/F Functional and economic depreciations are curable.

Answer 27

False. Functional and economic depreciations are NOT curable. Physical depreciations ARE curable.

Question 28

The cost approach takes into account the reproduction and/or replacement costs. What is the difference between the two?

Answer 28

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.

Question 29

What kinds of properties is the income approach used?

Answer 29

Properties that generate income like apartment buildings, shopping centers, office building, etc.

Question 30

What is the most important principle in appraisals?

Answer 30

Substitution.

Question 31

What is substitution?

Answer 31

The maximum value of property is set by how much it would cost to obtain another equally desirable property.

Question 32

What are the 6 economic principles that affect a properties value?

Answer 32

1) Highest & Best Use 2) Anticipation 3) Supply and Demand 4) Substitution 5) Conformity 6) Contribution

Question 33

T/F Based on the principle of substitution, if several similar properties are for sale, the lowest-priced property as the least demand.

Answer 33

False. Based on the principle of substitution, if several similar properties are for sale, the lowest-priced property as the greatest demand.

Question 34

T/F Based on the principle of conformity, regression is when the value of over-improved properties increases.

Answer 34

False. Based on the principle of conformity, regression is when the value of over-improved properties decreases. Big house among small houses.

Question 35

T/F Based on the principle of conformity, progression is when the value of under-improved property increases.

Answer 35

True

Question 36

What is the difference between increasing and decreasing returns?

Answer 36

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.