Chapter 21

Question 1

Appraisal

Answer 1

provides an estimate of value of property at a specific point in time

Question 2

3 Classifications of Appraisal Certification

Answer 2

Certified general appraiser (all, over $1 mil)
Certified residential appraiser (1-4 units)
Broker/appraiser – grandfathered in:
only properties under $250K
no involvement in “federally-related” transactions

Question 3

Broker Price Opinion

Answer 3

common in pre-foreclosure and litigation cases; may not be legal or ethical

Question 4

Value

Answer 4

Demand
Utility
Scarcity
Transferability

Question 5

Market Value

Answer 5

most probable price a property will bring in a sale

Question 6

3 Assumptions of Market Value

Answer 6

competitive and open market
buyer and seller are prudent and knowledgeable
depends on price of nearby properties

Question 7

Market Price

Answer 7

the actual sales price of a property

Question 8

Anticipation

Answer 8

value created by expectation that benefits will be realized in the future

Question 9

Competition

Answer 9

Interaction of supply and demand

Question 10

Conformity

Answer 10

maximum value realized if land conforms to existing neighborhood standards

Question 11

Contribution

Answer 11

value of a component is what addition contributes to the whole or what absence detracts

Question 12

Highest and best use

Answer 12

most profitable use, or most likely to be in demand in near future

Question 13

Plottage

Answer 13

merging adjacent lots may create more value than keeping them separate

Question 14

Regression

Answer 14

biggest house in the neighborhood is worth less because it does not conform

Question 15

Progression

Answer 15

lesser properties benefit from being near better properties

Question 16

Substitution

Answer 16

if 2 similar properties are for sale, the cheaper one will sell first

Question 17

3 Approaches to Value

Answer 17

Sales Comparison
Cost
Income

Question 18

Sales Comparison Approach

Answer 18

comparison of subject property to recently sold properties

Question 19

Cost Approach

Answer 19

for non-income producing properties

1. estimate value of land
2. estimate current costs for building and improvements
3. estimate accrued depreciation
4. deduct depreciation from current costs
5. add land value to depreciated costs

Question 20

3 Classes of Deterioration

Answer 20

Physical Deterioration
Functional Obsolescence
External Obsolescence

Question 21

Physical Deterioration

Answer 21

normal wear and tear on the property
Curable: repairs are economically feasible and may increase the value (painting)
Incurable: overall value does not justify repairs required (termites)

Question 22

Functional Obsolescence

Answer 22

physical or design features that are no longer desirable
Curable: outmoded features, room layout
Incurable: office building that can’t be air condition, building with low ceilings

Question 23

External Obsolescence

Answer 23

economic or locational obsolescence

usually incurable: polluting factory, airport nearby, bar across the street

Question 24

Straight Line Depreciation

Answer 24

assumes depreciation occurs at an even rate over structure’s economic life

Question 25

Income Approach

Answer 25

based on PV of rights to future income; assumes that income (rent) will control value of property

Question 26

Net Operating Income

Answer 26

Gross Income-Operating Expenses-NOI

Question 27

Capitalization Rate

Answer 27

NOI/Cap Rate=Value

Question 28

Gross Rent Multiplier (GRM)

Answer 28

for small residential properties uses monthly rent GRM multiplier=monthly rent/purchase price

Question 29

Gross Income Multiplier (GIM)

Answer 29

for commercial or industrial uses annual income GIM=annual rent/purchase price