Appraisal Flashcards
(23 cards)
Appraisal
provides the appraiser’s opinion of value based on supportable evidence and appraisal methods…
as defined by the Uniform Standards of Professional Appraisal Practice
(USPAP) established by the Appraisal Foundation’s Appraisal Standards Board.
Appraiser
state-licensed or certified for an appraisal performed as part of a federally related transaction
Appraiser Qualifications Board
sets minimum education
and experience requirements for licensing or certification
Appraisal Practices Board
recommends acceptable business practices.
Uniform Residential Appraisal Report (URAR)
required by Fannie Mae and Freddie Mac.
comparative market analysis (CMA)
a report by a real estate professional of market
statistics, but it is not an appraisal.
broker’s price opinion (BPO)
used in transactions involving home equity lines,
refinancing, portfolio management, loss mitigation, and collections.
Value is created by
DUST
Demand,
Utility,
Scarcity, and
Transferability of property
Market value
the most probable price that property should bring in a fair sale, but not necessarily the same as the price paid or the cost to construct.
Basic Principles of Valuation
Anticipation: value created by expected future events
Change: nothing is constant (natural and market forces)
Competition: supply/demand drives market forces
Conformity: value maximized when property fits neighborhood
Contribution: a component’s value depends on its impact on the whole
Highest and Best Use: most profitable legal, feasible, and permitted use
Increasing/Diminishing Returns: value increases only to a point
Plottage/Assemblage: merged parcels may be worth more together
Regression/Progression: value impacted by neighboring properties
Substitution: value is based on comparable alternatives
Supply and Demand: price is influenced by availability and desire
law of increasing and diminishing returns
is in evidence when additional property improvements no longer bring a comparable increase in property value.
Plottage
the increase in value that can result when two or more parcels of land are
combined
Plottage is the result of
assemblage
Progression
is in evidence when
a property’s value is enhanced because of more valuable properties in the vicinity
Regression
The opposite of progression
Substitution
the foundation of the sales comparison approach.
A buyer will not want to pay more for a property than it would cost to purchase an equally desirable and suitable property.
Supply and Demand
dictates that prices will rise when demand is high relative to supply, and prices will fall when supply is high relative to demand.
sales comparison approach (market data approach)
makes use of sales of properties comparable to the property that is the subject of the appraisal by adding or subtracting from the sales price of each comp the value of a feature present or absent in the subject property versus the comparable.
Cost Approach
Steps:
a. Estimate land value
b. Estimate current cost of improvements
c. Subtract depreciation
d. Add land value to net improvements
Straight Line Depreciation
Cost ÷ Economic Life
Depreciation Types
- Physical (curable/incurable)
- Functional obsolescence
- External obsolescence (always incurable)
The income approach
Based on the present value of the right to future income arrived at by these steps:
- Estimate annual potential gross income.
- Deduct an allowance for vacancy and rent loss to find effective gross income.
- Deduct annual operating expenses to find net operating income (NOI).
- Estimate the rate of return (capitalization rate or cap rate) for the subject by analyzing
cap rates of similar properties. - Derive an estimate of the subject’s market value by applying the cap rate to the property’s annual NOI using this formula: net operating income ÷ capitalization rate = value.
Reconciliation
the process by which the validity and reliability of the results of the
approaches to value are weighed objectively to determine the appraiser’s final opinion of value.
