# Unit 7: Appraisal Flashcards

0
Q

The cost of replacing an improvement with another of similar quality but not an exact replica

A

Replacement cost

1
Q

The process of converting a future income stream into an expression of PRESENT VALUE

A

Capitalization

2
Q

Loss in value due to causes EXTERNAL to the property

A

Economic obsolescence

3
Q

Method of valuing property by comparing the subject property to similar properties that have recently sold

A

Market Data Approach /Sales Comparison

4
Q

Demand
Utility
Scarcity
Transferability

A

Essential elements of VALUE

5
Q

An estimate or opinion of value of a specific property

A

Appraisal

6
Q

Income Capitalization Approach

A

NOI \ capitalization rate

7
Q

Based on the principal of substitution

A

Sales Comparison Approach

8
Q

Appraiser calculates accrued depreciation

A

Cost Approach

9
Q

Functional Obsolesce

A

Curable. Physical or design features considered no longer desirable

10
Q

Step in which the appraiser weighs all approaches to determine final value

A

Reconciliation

11
Q

Increase in value due to rising market

A

Appreciation

12
Q

Mathematical process never used in appraisal process

A

Averaging

13
Q

Method that relates the sales price of a property to its expected rental income.

A

Gross Rent Multiplier (GRM)

Sales Prices/
Rental Income = GRM

14
Q

Rental Income X GRM

A

Estimated Market Value

15
Q

Used when a property’s income also comes from no rental sources

A

Gross Income Multiplier (GIM)

16
Q

Appraise residential properties

A

Certified Residential Appraisers

17
Q

Appraise commercial properties

A

Certified general appraisers

18
Q

Established many federal agencies charged with the task of setting appraisal standards and minimum qualification requirements

A

The Financial Institutions Reform, Recovery and Enforcement Act if 1989

19
Q

The analysis of sales similar recently sold properties in order to derive an indication of the probable sales price of a particular property by a licensed real estate broker

A

Comparative Market Analysis (CMA)

20
Q

Relationship between an object desired and a potential purchaser

A

Value

21
Q

The most probable price the a property will bring in a competitive and open market , allowing reasonable time to find a purchaser, who buys the property with knowledge of all the uses to which it us adapted and for which it is capable of being used.

An opinion based on analysis of potential income, expenses, replacement costs

A

Market Value

22
Q

What a property ACTUALLY sells for.

A

Market Price

23
Q

Forces and factors influencing property value

A

Social
Economic
Political
Physical

24
Q

Trends in marriage, divorce rates, family size, longevity, desirability of social activities

A

Social forces

25
Q

Income, employment levels, rate of property taxation, current interest rates, general economic growth

A

Economic forces

26
Q

Government activities such as zoning, building codes, growth management, environmental legislation, tax structures

A

Political forces

27
Q

Topography, location, climate, size, shape, proximity to major a retrials, jobs, public transportation

A

Physical forces

28
Q

Most profitable single use to which a property is adapted and for which it is needed, or the use that is likely to be in demand in the reasonably near future. Can only be one use at any given time.

A

Highest and best use

29
Q

Several items with essentially the same amenities and utilities are available, the item with the lower price will attract the most demand

A

Substitution

30
Q

States that the value of the property will change if supply decreases and demand increase and vice versa.

A

Supply and demand

31
Q

Maximum value is realized if the use of the land confirms to existing neighborhood standards

A

Conformity

32
Q

Value can increase or decrease in anticipation of some future benefit or detriment

A

Anticipation

33
Q

Affirms that the value of any component of a property is defined by what it’s addition contributes to the value of the whole or what it’s absence detracts from that value

A

Contribution

34
Q

Principle that states that profit tends to attract competition

A

Competition Principal

35
Q

No physical or economic condition remains constant

A

Change Principal

36
Q

4 phases of cycle of change

A

Growth, stability, decline, renewal = Neighborhood Life Cycle

37
Q

Comparative data relating to costs, sales, and income & expenses of properties similar to and competitive with subject property

A

Specific Data

38
Q

Covers the nation, region, city, and neighborhood

A

General data

39
Q

Steps of an appraisal

A
```State the problem
List the data needed and the sources
Gather, record and verify the necessary data
Determine the highest and best use
Estimate the land value
Estimate the value by each of the three approaches
Reconcile the estimated values
Report final estimate```
40
Q

Estimate of value us obtained by comparing the subject property with recently sold comparable properties

*used most for single family homes

A

Sales Comparison Approach (Market Data Approach)

41
Q

4 categories of Sales Comparison Approach

A

Date of Sale
Location
Physical Features
Terms and Conditions of Sale

42
Q

Property did not sell for an unusually high or low price bc of a special relationship between buyer and seller

A

Arm’s Length Transaction

43
Q

Value of feature present in comparable property but not in subject property

A

SUBTRACTED from comparable property’s total sales price

44
Q

Based on substitution which states that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute. Most helpful in the appraisal of special-purpose buildings such as schools, churches, public buildings.

A

The Cost Approach

45
Q

5 steps of cost approach

A

1) estimate the value of the land as if it was vacant (sales comparison approach)
2) separate the land from improvements, estimate the current cost of constructing the buildings and site improvements based on cost data and experience
3) estimate accrued depreciation resulting from physical deterioration, functional or economical obsolescence
4) deduct accrued depreciation from the estimated construction cost and the contributory depreciated value of site improvements
5) add estimated value of the land to the depreciated cost of the building and site improvements to determine total property value

46
Q

Dollar amount required to construct an exact duplicate of the subject building at CURRENT prices

A

Reproduction Cost

47
Q

Cost per square foot of a recently built comp x sq feet in subject building. Most common method of cost estimation

A

Square foot method

48
Q

Replacement cost of a structure estimated based on construction cost per unit of measure of individual building components including material, labor, overhead and profit. Most components are measured in sq feet

A

Unit-in-place method

49
Q

Estimate made of the quantities of raw materials needed to replace the subject structure as well as current price of materials plus installation. These factors are added to indirect costs (survey,payroll taxes, building permit) to arrive at total replacement cost

A

Quantity-survey method

50
Q

Loss in value for any reason. Adversely affects the value of an improvement to real property

A

Depreciation

51
Q

Curable. Repairs that are physically possible and economically feasible and will result in an increased appraisal value equal to or exceeding their cost

A

Physical deterioration : curable

52
Q

Repairs to major structural components if a building which deteriorate at different rates may not be economically feasible

A

Physical deterioration : in curable

53
Q

Physical or design features that are no longer desirable but can be replaced

A

Functional obsolescence :curable

54
Q

Undesirable design features that can NOT be remedied easily. (Older multistory industrial building )

A

Functional obsolescence : Incurable

55
Q

Effective age of a building and it’s economic (useful) life

A

Age life method

56
Q

Cost of an asset is depreciated evenly over its useful life

A

Straight line method of depreciation

57
Q

A building’s economic life x amount of depreciation the building has suffered

A

Effective Age

58
Q

Based on the present worth of the future rights to income. Assumes that the income derived from a property will control the value of the property. Used on apartment buildings, office buildings, shopping centers

A

The Income Capitalization Approach

59
Q

Annual potential gross income- appropriate allowance for vacancy and rent losses

A

Effective Gross Income

60
Q

Effective gross income - annual operating expenses (taxes,insurance, maintenance,repairs, mgmt costs)

A

Net operating income (NOI)

61
Q

Rate if return an investor would will demand for investment in building. Compares NOI to sales prices of similar properties sold in current market

A

Capitalization Rate

62
Q

Net operating income /

Capitalization rate = Value

A

Income capitalization rate

63
Q

Income/rate = Value

Income/value = Rate

Value x rate = Income

A

Variations in estimating value of income producing property

64
Q

Used to appraise single and two family homes used as income properties

A

Gross Rent Multipliers or Gross Income Multipliers

65
Q

Sales Price /

Rental income

A

Gross rent multiplier (GRM)

66
Q

Rental income x GRM

A

Estimated market value

67
Q

Federally related appraisals must follow guidelines stated in

A

Uniform Standards of Professiinsl Appraisal Practice (USPAP)

68
Q

Economic principals of value

A
```Highest and best use
Substitution
Supply and demand
Conformity
Anticipation
Contribution
Competition
Change```