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Appraisal 2 - Income Property Valuation > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

appraisal

A

USPAP (1) The act or process of estimating value; an estimate of value. (2) Pertains to appraising and related functions, e.g., appraisal practice, appraisal services.

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2
Q

bundle of rights

A

An ownership concept that describes real property by the legal rights associated with owning the property. It specifies rights such as the rights to sell, lease, use, occupy mortgage, and trade the property, among others. These rights are typically purchased by the buyer in a sales transaction unless specifically noted or limited in the sale.

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3
Q

business enterprise value

A

The value resulting from business organizations, including such things as management skills, the assembled work force, working capital, and legal rights (trade names, business names, franchises, patents, trademarks, contracts, leases, operating agreements) that have been assembled to make the business a viable and valuable entity. Examples: hotels, nursing homes, regioinal shopping centers.

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4
Q

lessee

A

Person, entity lessing real estate from the owner

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5
Q

capital market

A

The market in which long-term or intermediate-term money instruments are traded by buyers and sellers. It also refers to the market for all the various sources of capital for either lending or investment, including government and corporate bonds, corporate stocks, and debt and equity capital for real estate.

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6
Q

cost-benefit study

A

An analysis of the cost of creating and improvement versus the benefits that will be created by the improvement, including non-monetary issues. A cost-benefit study is typically used by public agencies to make decisions concerning capital improvements.

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7
Q

environmental impact study

A

(EIS) An analysis of the impact of a proposed land use onits environment, including the direct and indirect effects of the project during all phases of use and their long-run implications.

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8
Q

equity interest

A

The owners’s capital investment in a property; the property value less the balance of any debt as a particular point in time. Equity is equal to the property value if there is no debt on the property.

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9
Q

feasibility study

A

According to the USPAP, a study of the cos-benefit relationship of an economic endeavor.

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10
Q

fee simple estate

A

Absolute ownership of real estate that is unencumbered by any other interest or esstate ad is subject to the limitations of eminent domain, escheat, police power, and taxation. A fee simple estate can be valuated by the present value of market rents.

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11
Q

improvements

A

Structures or buildings that are permanently attached to the land.

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12
Q

income

A

NOT SURE YET - NOT IN BACK OF BOOK

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13
Q

income property

A

A property that is held in anticipation of receiving income; e.g., residential properties that are typically rented, such as apartments, and nonresidential properties that are typically leased, such as office buildings, shopping centers, and hotels.

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14
Q

investment analysis

A

According to the USPAP, a study that reflects the relationship between acquisition price and anticipated future benefits of a real estate investment.

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15
Q

land

A

The earth’s surface including the solid surface of the earth, water, and anything attached to it; natural resources in their original sate. e.g., mineral deposits, timber, soil. In law, land is considered to be the solid surface of the earth and does not include water.

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16
Q

land lease

A

A lease for the use and occupancy of land only. Also called ground lease.

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17
Q

land utilization study

A

leased fee estate

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18
Q

marketability study

A

A real estate analysis of a specific property that addresses the ability of the property to be absorbed, sold, or leased under current and anticipated market conditions.

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19
Q

market study

A

According to the USPAP, a study of real estate market conditions for a specific type of property.

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20
Q

mortgage interest

A

Money paid for the use of borrowed money through a mortgage. The rate can be fixed or variable.

21
Q

non-realty interest

A

Property rights that might be purchased with real estate, land, buildings, and fixtures that are either tangible or intangible personal property such as furniture in a hotel or franchise (business)value of the hotel.

22
Q

non-residential income property

A

Includes hotels and commercial, industrial, and other special-purpose properties.

23
Q

personal property

A

According to the USPAP, identifiable, portable and tangible objects that are considered by the general public as being personal, e.g., furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; all property that is not classified as real estate.

24
Q

primary mortgage market

A

The interaction of lenders who originate loans with borrowers seeking mortgage loans to purchase or refinance a property. Also refers to the initial source of capital received by a user to fund a project.

25
Q

real estate

A

According to the USPAP, an identified parcel or tract of land, including improvements, if any.

26
Q

real property

A

According to USPAP, the interests, benefits, and rights inherent in the ownership of real estate. Comment: In some jurisdictions, the terms ‘real estate’ and ‘real property’ have the same legal meaning. The separate definitions recognize the traditional distinction between the two concepts in appraisal theory.

27
Q

residential income property

A

NOT SURE YET - NOT IN BACK OF BOOK

28
Q

secondary mortgage market

A

When an original loan is sold to another lender. It is sold to the ‘secondary mortgage market’ FNMA/Fannie Mae and FHLMC (Federal Home Loan Mortgage Corp) are two main buyers of loans. This helps the lenders have cash flow to fund additional loans.The interaction of buyers and sellers of existing mortgages. Created by government and private agencies, the secondary mortgage market provides greater liquidity for the mortgage market.

29
Q

segmented market - (2 processes)

A

1) The process of classifying consumers or buyers into relatively homogeneous groups based on their economic, demographic, and/or psycho-graphic characteristics (such as attitudes, habits, and life styles). 2) The process of differentiating the potential users of the subject property from the general population, according to defined consumer characteristics.

30
Q

What are the ways of classifying income property?

A

Income property may be classified as either residential or non-residential and may have a variety of characteristics.

Income property can be classified into two main categories: residential and nonresidential properties. Residential can be further classified into single family and multifamily property types. Nonresidential properties include commercial (office, shopping centers), hotel, industrial, and special purpose property types.

31
Q

What is the difference between real estate and real property?

A

Real Estate has two major PHYSICAL components: the land and the improvements that are added to the land.

In some jurisdictions, the terms real estate and real property have the same legal meaning. However, appraisal theory has traditionally separated the meanings. In this case, real estate refers to the physical land and improvements, if any. Real property is defined as the interests, benefits, and rights inherent in the ownership of the real estate.

32
Q

What is meant by the term bundle of rights? How can these rights be separated?

A

All rights to real property are referred to as bundle of rights. An owner can convey all or part of the bundle of rights to another entity for the duration of the lease.

The term bundle of rights refers to an ownership concept in which real property is described as the group or “bundle” of legal rights associated with owning the property. The legal rights specified include those such as the right to sell, lease, use, occupy mortgage, and trade the property

33
Q

What are the sources of non-realty interests? Give examples of non-realty interests. Do non-realty interests have value? Is it included in the appraisal?

A

Non-realty interests include personal property (e.g., All property that is not classified as real estate: identifiable, portable, tangible objects that are considered personal like furnishings, artwork antiques, gems and jewelry, machinery, equipment) and intangible property such as business value and contractual arrangements. Yes, non-realty interests do have value. It is included as a separate line item on the appraisal. Not included ‘with’ the real estate appraisal.

Appraisers must be careful to separate the value of nonrealty interests from the property value in a real estate appraisal if they exist. Sources of nonrealty interests include portable, tangible objects such as personal property or the value resulting from the management skills, workforce, and legal rights associated with a business. The term going concern value is also defined in this chapter. It is the total value of the property including the real property, tangible personal property and the enhancement to value resulting from an operating business.

34
Q

What interests are created when a property is financed with a mortgage (2 of them)?

A

1) mortgage interest- lender receives this once the property is financed with a 2nd mortgage on it. 2) equity interest - the owners interest in the property (his/her equity).

Mortgage financing creates a mortgage interest, which is the lender’s interest in the property, and an equity interest, which is the owner’s interest in the property. The values of these interests are further discussed in Chapter 14.

35
Q

What is meant by the term appraisal?

A

An appraisal is an analysis of the potential uses of a parcel of land and a determination of the highest and best use for that parcel.

According to the Uniform Standards of Professional Appraisal Practice, appraisal is defined as (1) the act or process of estimating value; an estimate of value, and (2) pertains to appraising and related functions (e.g., appraisal practice, appraisal services). An appraisal is an unbiased estimate of the value of an identified interest in real property, personalty, or intangible assets. The process involves the analysis of market data, the application of the appropriate analytical approaches, and the use of judgment to arrive at an estimate of value. The three approaches used to develop value estimates are the cost approach, sales comparison approach, and the income capitalization approach.

36
Q

Why is it necessary to appraise real estate income property?

A

NOT SURE YET. NEED TO READ CHPT AGAIN.

The validity of real estate values is important to the many different market participants including buyers, lenders, sellers, and government agencies. Real estate values depend on the physical, legal, social, and economic characteristics of their markets. Because of the complexity of the real estate market and the lack of market information, a valid appraisal process is needed to determine real estate values.

37
Q

What distinguishes real estate markets from the market for other investments?

A

A market for an item like stocks and bonds is created by the interaction of buyers and sellers all seeking to exchange similar goods. Real estate markets are very cyclical and can be distinguished from other market investments because of many factors: No organized market, availability of (or lack of) market information, infrequent trades of property, immobility of real estate, uniqueness of parcels, segmented markets, government regulations, market trends, supply of real estate, few buyers/sellers at one time.

38
Q

How could changes in the capital market affect the value of real estate income property?

A

Investors are looking for the same or better rate of returns on their real estate investments. Changes either up or down in the capital market, loan rates, etc., will have an affect on real estate income property sales and value.

Real estate investors expect a return commensurate with that of other capital investments of similar risk. In addition, real estate is typically financed with mortgages obtained from various types of financial institutions.

39
Q

What is the difference between a marketability study and a market study?

A

A marketability study looks at all aspects of the market for one piece of real estate. The study analysis the ability of a property to be absorbed, sold, leased, rented over an absorption period. A market study looks at an entire market and analysis the make-up of an area. Economic, demographics, political, social, cultural, etc.

A marketability study analyzes the ability of a specific property to be absorbed, sold, or leased under current and anticipated market conditions, whereas a market study is an analysis of the general market conditions affecting a particular property type.

40
Q

What is the highest and best use analysis?

A

A series of feasible studies for different use scenarios for the subject property. 1. Vacant and could be improved in the optimal manner; or 2. currently improved. Using data from market studies, marketability studies and feasible studies.

Highest and best use analysis (HBU) is conducted to determine the best use of a property. This is done through a series of feasibility studies for different uses of the property, both for the land as if vacant and for the property as if improved.

41
Q

Compare a feasibility analysis, highest and best use, and investment analysis.

A

Feasibility analysis is a study of the cost-benefit relationship of an economic endeavor using the results of the market and marketability studies to determine whether a project will meet the economic return requirements of a specific market or investor. Highest and best use uses a series of feasibility analysis and the market, marketability studies to arrive at a conclusion of best use of the property. Investment analysis is a study that reflects the relationship between acquisition price and anticipated future benefits of a real estate investment.

42
Q

What does the discipline of real estate appraisal deal with?

A

The theory and techniques involved in estimating the value of property.

According to the Uniform Standards of Professional Appraisal Practice, appraisal is defined as (1) the act or process of estimating value; an estimate of value, and (2) pertains to appraising and related functions (e.g., appraisal practice, appraisal services). An appraisal is an unbiased estimate of the value of an identified interest in real property, personalty, or intangible assets. The process involves the analysis of market data, the application of the appropriate analytical approaches, and the use of judgment to arrive at an estimate of value. The three approaches used to develop value estimates are the cost approach, sales comparison approach, and the income capitalization approach.

43
Q

In its simplest form, Residential income property consists of? In its most complex form, it might consist of?

A

Simplest it consists of a single-family rental property; in its most complex it might consist of a high-rise apartment project in a downtown metropolitan area. In either case rented space is used as a residential dwelling for one or more individuals.

44
Q

Land - definition

A

The earth’s surface, including land, water, and anything attached to it; and natural resources in their original sate (e.g., mineral deposits, timber, soil).

45
Q

Improvements - defined

A

Structures or buildings that are permanently attached to the land.

46
Q

What must an appraiser identify when appraising real estate?

A

An appraiser must identify the physical real estate being appraised as well as determine what legal rights are associated with the property being appraised.

47
Q

Leasehold estate

A

An ownership interest in real estate held by a tenant during the term of a lease.

48
Q

What does REIT stand for

A

Real Estate Investment Trust

Appraisal 2 - Income Property Valuation (2 decks)

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