Appraisal

Question 1

Appraising

Answer 1

Estimate of value for lenders, sellers, buyers, insurance co. etc.

Question 2

Fair Market Value Requirements

Answer 2

Knowledgeable buyers and sellers AND an arm’s length transaction (no undue pressure)

Question 3

Supply and Demand Effects

Answer 3

value of homes and rental rates.
Factors: Interest rates, economy, and age demographics.
Sellers Market - Low supply, high demand.

Question 4

Characteristics of Value (DUST)

Answer 4

Demand, Utility, Scarcity, Transferability.

Question 5

Value Depreciation

Answer 5

Homes goes down in value due to age, wear and tear. Depreciable base - depreciation + land

Question 6

3 Types of Depreciation

Answer 6

1. Physical Deterioration
2. Functional Obsolescence
3. External (economic) Obsolescence

Question 7

Physical Deterioration

Answer 7

Caused by neglect or deferred maintenance. Usually curable

Question 8

Functional Obsolescence

Answer 8

Items inside property lines that are no longer wanted, useful, or outdated. Ex. Out house. Usually curable except for a bad floor plan (Incurable)

Question 9

External (economic) Obsolescence

Answer 9

Items outside property lines. Almost always incurable. Road or zoning changes; smokestacks, paper factory, railway, race track, etc

Question 10

Principals of Value - Highest and Best

Answer 10

Use that provides the greatest net return on the land. The value of today’s use.

Question 11

Principals of Value - Substitution (Comparables)

Answer 11

Property only worth what one can get another one for that is just like it. Best indicator of value.

Question 12

Principals of value- Conformity

Answer 12

Properties should be similar to surrounding properties for greatest value.

Question 13

principals of Value - Anticipation

Answer 13

Look to the future for value

Question 14

Principals of Value - Competition

Answer 14

High profits attract the competition

Question 15

Principals of value - Contribution

Answer 15

The cost of an improvement adds that much to the toal value of property

Question 16

Principals of value - Increasing Returns

Answer 16

The cost of an improvement adds more to the total value of propertyP

Question 17

Principals of Value - Decreasing Returns

Answer 17

The cost of an improvement does not add that much to the total value of property

Question 18

Principals of value - Regression

Answer 18

Over built home in subdivision of modest homes. Lowers appreciation rate (maybe value) of over built home.

Question 19

Principals of value - Progression

Answer 19

Modest home in subdivision of luxurious homes. Increases appreciation rate (value) of modest home.

Question 20

Principals of value - Unlearned Increment

Answer 20

Increase value to external factors - not the owner’s effort. New infrastructure nearby

Question 21

Principals of value - Plottage Increment

Answer 21

Total value of the combined properties exceeds the total value of the individual properties. Achieved from performing an assemblage (combining properties into one for resale)

Question 22

3 types of approaches to estimate value

Answer 22

1. Market Data
2. Cost (Replacement) Approach
3. Income Approach

Question 23

Market Data (sales Comparison)

Answer 23

Residential and vacant land with comparables (Substitution); make adjustments to the comparable; calculate estimate of value using weighted average of the comparables.

Question 24

Cost (Replacement) Approach (Summination)

Answer 24

New, no comps, special purpose property, insurance; Estimate current replacement cost then subtract depreciation, add current land value = estimate of value.

Question 25

2 types of the Income Approach

Answer 25

1. Capitalization 2. Gross Rent Multiplier (GRM)

Question 26

Capitalization

Answer 26

Income properties, apartments, shopping centers.

Question 27

Capitalization Rate

Answer 27

The return on one's investment (%)

Question 28

Effective Gross income (EGI)

Answer 28

Gross potential income minus vacancy rates and collections.

Question 29

Net Operating Income (NOI)

Answer 29

Money available to pay debt and provide profit. EGI minus operating expenses NOI/Cap rate = Estimate of Value

Question 30

Gross Rent Multiplier (GRM)

Answer 30

Single family investment properties. Comparable sold price and divide by monthly rent for GRM

Question 31

Competitive Market Analysis (CMA)

Answer 31

what agents use to estimate a list price, make an offer or reevaluate an existing listing.

Question 32

Three types of Comps

Answer 32

1. Sold - best, near-by, location, recently sold 2. Active - competition 3. expired - listing expired because of price

Question 33

Steps in the Appraising process

Answer 33

State the problem Gather the data Analyze and Interpret Reconcile Issue the report