4 - Value Practical Application

Question 1

Comparables

Answer 1

The house(s) you’re comparing the subject to

Question 2

Subject

Answer 2

The house you are selling

Question 3

Cost / Summation Approach

Answer 3

The Age-Life or Straight-Line method to calculate the dollar amount of a property’s depreciation.

Finding value by how much it is to reproduce.
Adding the land and the replication of the building.

Question 4

Selecting Comparables

Answer 4

Recent: Within 3 months
Similar: Architecture, size, build
Sold in Similar Market Conditions: 1 mile

Question 5

Underwriter

Answer 5

Makes the final decision for a loan

Question 6

Square Foot Method

Answer 6

Measure the outside… Residential Standard.

Cubic feet for Commercial/ Warehouses

Question 7

Unit in Place Method

Answer 7

Adding the different pieces together: Foundation + HVAC + Bathrooms + ETC.

Question 8

Quantity Survey Method

Answer 8

How many bricks?
How many tiles?
How many shingles?
FOR BUILDERS

Question 9

Depreciation: Physical Deterioration

Answer 9

CURABLE

Normal wear n tear.

Question 10

Depreciation: Functional Obsolescence

Answer 10

CURABLE

Outdated design, architecture, appliances

Question 11

Depreciation: Economic Obsolescence

Answer 11

INCURABLE
Wal-Mart in the Backyard
Foreclosures, taxes, schools… Outside things.

Question 12

Capitalization Rate

Answer 12

The rate of return a property will produce on the owner’s investment

Question 13

Gross Rent Multiplier (GRM) / Gross income multiplier

Answer 13

Figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property’s value; usually used for single-family res. homes

Question 14

Capitalization Approach

Answer 14

Huge Building Rent Calculations

Question 15

Does selling a house 6 years ago have an effect on an estimate?

Answer 15

NO EFFECT AT ALL.

Question 16

What comes first in the capitalization approach?

Answer 16

Determining potential gross income

Question 17

In a CMA, a comparable house sells for $50k less than listed due to divorce. Is this a good comparable house to use?

Answer 17

NO!

Urgency sales don’t act as good comparables.

Question 18

Capitalization / Income Method

Answer 18

Appraising for rentals for Single family res. and Multi-Fam.

Question 19

I use the Market Date, Cost Approach, and Capitalization Method to estimate a property’s market value… what should I do next?

Answer 19

Reconcile the values using each of the 3 methods to establish an estimated market value.

Question 20

Primary concern in GRM or GIM to arrive at a valuation for the property:

Answer 20

A property’s SALE PRICE and its RENTS.

Question 21

Most complete narrative reports

Answer 21

NARRATIVE REPORT.

Question 22

Appraise a 10 y/o single-family res. neighborhood home… What method?

Answer 22

Sales Comparison / Market Data Method

Question 23

Market Value vs. Market Price

Answer 23

Estimated by an appraiser who uses recent market prices as determined by buyers and sellers.