Chapter 7 - Appraisal

Question 1

ACES (Performance of CMA) (appraisal)

Answer 1

Active
Contract Pending
Expired
Sold (pref. within 6 months in the same area)

Question 2

BPO

Answer 2

Broker’s price opinion (aka “drive by appraisal”)

Question 3

DUST (re: to have value)

Answer 3

Demand
Utility
Scarcity
Transferability

Question 4

Market value

Answer 4

Most probably price a property should bring in a fair “arms length” transaction.

Question 5

Market price

Answer 5

What a property actually sells for

Question 6

Anticipation (Principles of value)

Answer 6

Value is created by the expectation that certain events will occur.

Question 7

Conformity (Principles of value)

Answer 7

Maximum value is created when a property is in harmony with its surroundings; when use of land conforms to existing neighborhood standards.

Question 8

Contribution (Principles of value)

Answer 8

Calue of any part of a property is measued by its effect on the value of the whole (ex. kitchen or bathroom remodel more valuable than pool or greenhouse).

Question 9

Higest and best use (Principles of value)

Answer 9

The most profitable single use to which a property may be put.

Question 10

Increasing and diminishing returns (Principles of value)

Answer 10

There’s a limit to the impact improvements will have on the overall value of the property.

Question 11

Plottage (Principles of value)

Answer 11

Total value of two adjacent properties may be greated if they are combined (than the sum of their individual parts).

Question 12

Progression

Answer 12

Increasing of a property’s value due to its neighbors.

Question 13

Regression

Answer 13

Decreasing of a property’s value due to its neighbors.

Question 14

Substitution

Answer 14

Maximum value of a property is set by how much it would cost to purchase an equally desirable and valuable substitute property (foundation of sales comparison approach).

Question 15

What are the three approaches to value? (appraisal)

Answer 15

1. Sales Comparison Approach (most common residential)
2. The Cost approach (For special purpose properties)
3. Quantity-survey method (architect)

Question 16

CBS (Sales comparison approach)

Answer 16

Compatable Better –> Subtract

Question 17

CBA (Sales comparison approach)

Answer 17

Comparable Better –> Add

Question 18

Formula for ‘The Cost Approach’ to appraisal

Answer 18

(Cost new) - (Depreciation) + Land = Value

Question 19

Reproduction cost (appraisal)

Answer 19

Contruction cost at current prices of an exact duplicate.

Question 20

Replacement cost (appraisal)

Answer 20

Cost to construct an improvement similar to the subject property.

Question 21

Depreciation

Answer 21

Loss of value due to any cause

Question 22

The three classes of depreciation are:

Answer 22

1. Physical deterioration (wear, tear, neglect)
2. Functional obsolescence (bad design, out of style)
3. External obsolescence (aka. economic depreciation…zoning, etc. Beyond the owners’ control).

Question 23

Equation for calculating Capitalization Rate (Income appraisal approach)

Answer 23

Income / Value

Question 24

Equation for calculating Value (Income appraisal approach)

Answer 24

Income / Capitalization Rate

Question 25

As the capitalization rate goes down, the value _____.

Answer 25

Increases

Question 26

As the capitalization rate goes up, the value _____.

Answer 26

decreases

Question 27

Equation for calculating Income (Income appraisal approach)

Answer 27

Value x Capitalization rate