Chapter 12 Valuation Process and Pricing Properties Flashcards Preview

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Flashcards in Chapter 12 Valuation Process and Pricing Properties Deck (42):

What is an Appraisal?

An unbiased estimate of the nature, quality,value or utility based on factual data of an interest in or aspect of identified real estate and related personality as of a certain date.


What is Valuation?

The study of market value.


What are the 6 types of value?

1. Assessed value
2. Insurance value
3. Investment value
4. Market value
5. Mortgage value
6. Value in use


Explain investment value?

The amount of return on a certain dollar investment that a property will produce.

Example if a investor requires a 20 percent return and the property returns 20,000 the investment value is 100k.


What is Insured Value ?

The cost of replacing or reproducing the structure in case of a total loss because of an insured hazard.


What is Value in use?

The value of property based on its usefulness to an owner or investor.

Changes from owner to owner


What is assessed value ?

Normally a percentage of market value such as 80 percent.


I’m New York what is the tax rate applied to assessed value to compute the property tax?

100% in many tax jurisdictions


Assessed value is calculated by using what formula?

Market value x assessment rate = assessed value


What is Mortgagee Value?

Whatever the lender believes the property will bring at a foreclosure sale or subsequent resale.


What is Market Value?

The most probable price as of a specific date , in cash or in other terms for which the property should be sold after reasonable exposure in a competitive market.


What is Evaluation?

A study of the nature ,quality or utility of certain property interest in which a value estimate I not necessarily required.
( how would you use this property to make money)


Evaluation studies include what following types?

1. Market studies ( can property be effectively presented and marketed in its condition)

2. Feasibility studies ( site development cost,environmental factors, cost of available financing such as interest rates, tax considerations, rates of returns on similar investments and community benefits).

3. Supply and demand studies

4. Land utilization studies (land is evaluated for its best land use)


Explain Price ?

The amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding the transaction.


Explain Cost?

The total dollar expenditure for labor,materials,legal services ext.


What are the two types of cost?

1. Direct cost - also know as a hard cost and includes labor and materials

2. Indirect cost - also know as a soft cost which includes architectural and engineering fees , attorneys and appraiser cost ext.


What is a Comparative Market Analysts (CMA)?

An analysis of the competition in the marketplace that a property will face upon sale attempts.


Is a CMA an appraisal?



An appraisal uses collected data and applies three approaches to value which are?

1. Sales comparison
2. Cost
3. Income


Who does a CMA ?

Real estate agents


What is a Residential Market Analysis ?

A study of factors effecting a property’s value.( views the property in light of conditions in the marketplace)


What are some things you will see on a CMA?

1. Recently sold properties
2. Current Competing properties
3. Recently expired properties ( show homes priced to high and don’t sell)
4. Buyer appeal ( properties visual aspects )
5. Market position ( the number of similar properties available in the same price range)
6. Assets and drawbacks ( tolerable traffic or desirable location)
7. Area market conditions (holidays weather and the start of school year)
8. Recommended terms ( the financing terms , will property be available immediately , does the buyer have a property to sell)
9. Market value range ( when a price range for a property is determined)


Explain the highest and best use?

The use of land aimed at preserving its usefulness providing the greatest income and resulting in the highest land value.


To be considered as the lands highest and best use any potential use must pass certain test which are?

1. Is it legally allowable cannot violate any laws.

2. Is it Physically possible

3. Maximally productive ( a property must only have one highest and best use that will allow the maximum use of the property)

4. Financially feasible ( use must produce enough dollars to justify and pay for the construction cost and produce profit)


What is the combining of several parcels called?



Explain sales approach?

Compares subject to similar properties and make appropriate adjustments.


Explain Cost Approach?

Theoretically rebuilds the structure new and then adjust to its present condition.


Explain Income Approach ?

Applies a capitalization formula to forecast income or income produced(rent).


What is the primary approach for estimating the value of single family owner occupied dwelling and vacant land?

Sales comparison approach


What is the main method for estimating the value of properties that have few if any comparable and are not income producing?

Cost Approach ( relies heavily on depreciation)


What are types of structures appraised by the cost approach method ?

Schools, hospitals , and government office building.


What is deprecation?

A loss in value for any cause.


What does depreciation result from?

Physical obsolescence
Functional obsolescence
Economical obsolescence


What does Functional obsolescence refer too?

Flawed or faulty property made inferior because of technical advances.(how one can use property)

Example ( outdated equipment exposed airings or plumbing)


Explain physical obsolescence?

Wear and tear and lack of maintenance


What does Economic obsolescence refer too?

Property that is outdated to for external environmental reasons or locational reasons.


Explain external obsolescence?

Change in surrounding land use such as zoning, increased traffic, air pollution.


Explain income approach?

The primary method used to estimate the present value of properties that produce income.


What is an Income approach also called?

Appraisal by capitalization.


In an Income approach how is the value of the property estimated ?

By converting the net annual income into an indication of present value by application of capitalization rate.


What is the capitalization rate?

The rate that other investors are achieving on like investments.


What is The Uniform Residential Appraisal Report (URAR)?

The most common appraisal for used by appraisers.