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Part 1-12 focus Flashcards

(65 cards)

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1
Q

The Valuation Process

A

1- Identify client and intended users
2- Identify the intended use
3- Identify the purpose of the assignment (type and definition)
4- Identify the effective date of the opinion
5- Identify the relevant characteristics of the property
6- Identify assignment conditions

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2
Q

Intended use

A

the use of an appraisers reported appraisal or appraisal review assignment results, as identified by the appraiser based on communication with the client at the time of the assignment

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3
Q

Effective date

A

is the date of the value opinion, and it may be a past, current, or future date depending on the intended use and purpose of the appraisal

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4
Q

Current effective date

A

is contemporaneous (occurring in the same period) with the date of the report

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5
Q

Retrospective effective date

A

these are in the past, and are commonly used for estates (probate), casualty loss, property tax appeal and marriage dissolution

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6
Q

Prospective effective date

A

appraisals as of a future date are needed in assignments for proposed or renovated improvements when the value date is based on completion or stabilized occupancy

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7
Q

Extraordinary Assumption

A

an assignment specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser’s opinions or conclusion.

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8
Q

Hypothetical condition

A

this is a condition that is contrary to what exists but is supposed for the purpose of analysis

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9
Q

6 procedures for analyzing land

A
  1. Sales Comparison
  2. Extraction
  3. Allocation
  4. Land residual technique
  5. Ground Rent Capitalization
  6. Subdivision development analysis
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10
Q

Sales comparison approach

A

Preferred method for land valuation, owner occupied methods. The appraiser derives a value indication by comparing the subject property to similar properties that have sold recently.

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11
Q

Income capitalization approach

A

measures the present value of the future benefits derived from the property owner ship.

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12
Q

Cost Approach

A

reflects market thinking by recognizing that participants in the marketplace relate value to cost. is a real estate valuation method that surmises that the price a buyer should pay for a piece of property should equal the cost to build an equivalent building. In cost approach appraisal, the market price for the property is equal to the cost of land plus cost of construction, less depreciation.

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13
Q

Extraction

A

Sales price MINUS contributory value of the improvements = extracted value. Of land

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14
Q

Elements of comparison

A 
1 - real property rights conveyed
2 - financing terms 
3 - conditions of sale
4 - expenditures made immediately after purchase
5 - market conditions

*** transaction adjustments

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15
Q

Step 7 - Reconciliation of value indications and final opinion of value

A

the final analytical step in the valuation process is the reconciliation of the value indications into a single dollar figure or range into which the value will most likely fall

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16
Q

Capitalization

A

The conversion of income in to value

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17
Q

Direct capitalization

A

a method used to convert an estimate of a single years income expectancy in to an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor.

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18
Q

Yield capitalization

A

is always definite and precise for each year’s cash flow and reversion.

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19
Q

IRV

A

Income rate value

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20
Q

VIF

A

Value income factor

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21
Q

Potential gross income

A

the total potential income attributable to property at full occupancy before vacancy and operating expenses are deducted.

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22
Q

Effective gross income

A

the anticipated income from all operations of the real estate after an allowance is made for vacancy and collection losses and an addition is made for any other income

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23
Q

Net operating income

A

the actual or anticipated net income that remains after all operating expenses are deducted from effective gross income, but before mortgage debt service and book depreciation are deducted

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24
Q

Pre-tax cash flow

A

the portion of net operating income that remains after total mortgage debt service is paid but before income tax on operations is deducted

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25
Reversion
a lump sum benefit that an investor receives or expects to receive upon the termination or sale of an investment
26
Overall capitalization rate
the relationship between a single year’s net operating income expectancy and the total property price or value.
27
Capitalization rate
a ratio of one year’s net operating income provided by an asset to the value of the asset. Used to convert income into value in the application of the income capitalization approach
28
Yield Rates
these are rates of return on capital, usually expressed as compound annual percentage rate for projection periods greater than one year
29
Factors
are called multipliers because thats the mathematical function you perform with a factor when seeking value
30
Gross income Multiplier
ratio between the sale price of a property and its effective gross income or its potential gross income
31
Gross lease – the land lord pays all of the operating expenses.
Gross lease – the land lord pays all of the operating expenses.
32
Net lease – the tenant pay all of the operating expenses
Net lease – the tenant pay all of the operating expenses
33
lease
The rights to use and occupy land, space, or structures are transferred by the owner to another for a specific period of time in return for a specific rent.
34
Percentage lease
A lease in which the rent or some portion of the rent represents a specified percentage of the volume of business, productivity, or use achieve by the tenant.
35
Index lease
A lease, usually for a long term, that provides for periodic rent adjustments based on the change in an economic index. For example cost of living index.
36
Vacancy and collection loss
allowance for nonpayment of rent. Made to reflect income reductions due to vacancies, tenant turnover, and nonpayment of rent.
37
Fixed expenses
operating expenses such as property taxes and insurance that generally do not vary with occupancy.
38
Operating expense ratio
operating expenses / effective gross income
39
6 major components of a building
``` 1- Foundation, 2- framing, 3- roofing, 4 - plumbing, 6 - electrical wiring, 7 - HVAC. ```
40
3 types of foundations
1 - slab (perimeter stem wall, monolithic) 2 - pier 3 - wall (crawl space, basement)
41
INCOME TEMPLATE
``` 1 – Potential gross income 2 – (MINUS) Vacancy and collection loss 3 – (EQUALS) Effective gross income 4 – (MINUS) Operating expenses 5 – (EQUALS) net operating expenses 6 – (MINUS) Debt Service 7 – (EQUALS) Pre-tax cash flow ```
42
Replacement cost
the estimated cost to construct, at current price as of a specific date, a substitute for a building or other improvement, using modern materials and current standards, design, and layout.
43
Reproduction cost
the estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials…
44
Direct costs (hard)
Labor & Materials
45
Indirect costs (soft)
architectural & appraisal
46
Entrepreneurial profit (loss)
market value – total cost of development
47
Comparative unit method
most commonly used cost estimating method, used to derive a cost estimate in terms of dollars per unit of area or volume based on known costs of similar structures that are adjusted for market conditions… geo…
48
Unit-in-place method
the total building cost is estimated by adding together the unit costs for the various building components as installed.
49
Quantity survey method
all materials, all categories of labor, are estimated and unit cost figures are applied to arrive at a total cost.
50
Economic life
this is a period over which improvements to real property contribute to property value
51
Remaining economic life
this is the estimated period over which existing improvements are expected to contribute economically to a property
52
Actual age
the number of years that have elapsed since construction of an improvement was completed. Historical age.
53
Effective age
the age of property that is base on the amount of observed deterioration and obsolescence it has sustained, which may be different from its chronological age. What is looks like.
54
age life method
Depreciation from all sources is grouped together in a lump sum amount that is derived through the use of a ratio applied to the current cost of the structure
55
market extraction method
This method relies on the availability of comparable sales from which you can extract the depreciation
56
breakdown
In this method, the total diminution in the value of a property is estimated by analyzing and measuring each cause of depreciation
57
Effective age t- bar
Effective Age | Percent of depreciation / Economic life
58
$ amount of depreciation T Bar
$ amount of depreciation | Percent of depreciation / cost
59
Depreciated Cost (value)
Cost MINUS $ amount of depreciation
60
Economic life
Effective age + remaining economic life
61
Useful life
period of time over which a structure or component of a property may reasonably be expected to perform the function it was designed
62
Remaining Useful life
The estimated period during which improvements will continue to provide utility
63
Actual age
rather than effective age is used in estimating remaining useful life
64
Curable
Broken windows broken steps peeling paint
65
incurable
These are items of deterioration that cannot be practically or economically corrected as of the effective date of the appraisal

Procedures (12 decks)

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