Unit 8: Valuation + Market Analysis Flashcards
Evaluation:
A study of a property, possibly for land use or marketability.
Valuation:
The process of forming an opinion of a property’s value.
Appraisal:
Determines property value based on the appraisal “problem,” which varies depending on the property type, client, and intended purpose of the appraisal.
What do appraisers help with?
determine property worth, mortgage value, investment value, or insured value.
What are real estate licensees responsible for?
preparing a comparative market analysis for what buyers in a given market will pay for the property
Price:
Amount the buyer paid for a property and what the seller has accepted
Value:
A property’s worth that may not equal price or cost
Cost:
Amount to recreate that property if it disappeared off the face of the earth today
What are the 4 factors of value?
Demand, Utility, Scarcity, and Transferability
The principle of conformity:
A property’s value is determined in part by how well it conforms to its surrounding area.
The principle of competition:
A property’s value is determined in part based on what else is available.
The principle of substitution:
A reasonable person will not pay more for a property if a comparable one can be had for less.
The principle of contribution:
The value of any given change to the property is dependent on the value of the property as a whole.
Highest and best:
The most profitable (and legal and possible) use of a property
Plottage:
The joining of two adjacent parcels to increase the overall property value beyond what each would be worth if sold separately
Regression:
A decline in value due to the decline in value of neighboring properties
Progression:
The increase in property value from increased surrounding property values
Sales Comparison Approach to Value:
based on the value of similar properties in the market - appraiser look at both qualitative (elemental) and quantitative (unit-based) assets of a property
What are the elements of property used in the sales comparison approach?
financing terms and cash equivalency, conditions of sale, market conditions at the time of contract and closing, location, and physical characteristics
Cost Approach to Value:
based on the cost to rebuild the property - weighed heavily when property is unique/newly constructed
External depreciation:
caused by factors outside the property (e.g., an airport is built nearby, causing noise)
Functional obsolescence:
occurs with outdated structure or systems, or when a property is overbuilt for the area.
Physical deterioration :
occurs with wear and tear, damage, and improper maintenance.
replacement cost approach:
bases value on cost to build a functionally equivalent property.
reproduction cost approach:
determines cost to build an exact replica of the property with the same materials and deficiencies.
site value approach:
assumes the land is vacant and bases opinion on highest and best use.
Income approach:
determines potential property income if leased or rented, or by other means.
Gross income multiplier:
Sales price divided by gross annual income.
Gross rent multiplier:
Sales price divided by the gross monthly rent.
Capitalization rate or cap rate:
An annual rate of return from an income-producing property. Often used by investors to determine value or to compare one investment to another
Determine cap rate:
Divide annual income by value (or sales price) (I ÷ V = R).
Determine value using the cap rate formula:
Divide annual income by cap rate (I ÷ R = V).
Determine income using the cap rate formula:
Multiply cap rate by value (R x V = I).
Determine value of home with income approach:
If you know GRM of comparable, multiply monthly annual income by GRM
Process of Reconciliation:
Analyzing the findings from the approaches used, and then weighing the findings that each provided.
Higher unemployment in market = ….
reduce buyers, downward pressure on housing prices
Higher taxes in market = …
Decrease buying power
Lower taxes in market =…
Increase buying power
Higher interest rate in market =
fewer buyers, decrease in price
Lower interest rate =
more buyers, increase in price
CMAs:
not appraisals and are usually prepared at no cost, prepared by real estate licensees.
BPOs
prepared by real estate licensees, for a minimum fee, and appraisals generally cost $400 and up – sometimes ordered by lender in foreclosure situation to determine market price
making CMA Adjustments -
adjustments are made to the comparables, not to the subject property.
Selecting CMA comparable -
recent sales carry more weight than older sales
To find a home’s estimated value (based on price per square foot):
multiply the number of square feet by the price per square foot.
Price per square foot is calculated by :
dividing a home’s price by its square footage.
Appraisal:
An estimate of value that’s for a specific purpose, party, and property as of a specific date.
Broker’s price opinion (BPO):
The process used by a hired sales agent to determine the potential selling price or estimated value of a real estate property.
Comparative market analysis (CMA):
An opinion of a property’s market price range.
Market value:
The price the buyer and seller agree upon.
Demand:
How popular or desirable a property is
Utility:
The function of the property
Scarcity:
Relates to market supply.
Transferability:
The ease with which another person can purchase the property
