Unit 8: Valuation + Market Analysis

Question 1

Evaluation:

Answer 1

A study of a property, possibly for land use or marketability.

Question 2

Valuation:

Answer 2

The process of forming an opinion of a property’s value.

Question 3

Appraisal:

Answer 3

Determines property value based on the appraisal “problem,” which varies depending on the property type, client, and intended purpose of the appraisal.

Question 4

What do appraisers help with?

Answer 4

determine property worth, mortgage value, investment value, or insured value.

Question 5

What are real estate licensees responsible for?

Answer 5

preparing a comparative market analysis for what buyers in a given market will pay for the property

Question 6

Price:

Answer 6

Amount the buyer paid for a property and what the seller has accepted

Question 7

Value:

Answer 7

A property’s worth that may not equal price or cost

Question 8

Cost:

Answer 8

Amount to recreate that property if it disappeared off the face of the earth today

Question 9

What are the 4 factors of value?

Answer 9

Demand, Utility, Scarcity, and Transferability

Question 10

The principle of conformity:

Answer 10

A property’s value is determined in part by how well it conforms to its surrounding area.

Question 11

The principle of competition:

Answer 11

A property’s value is determined in part based on what else is available.

Question 12

The principle of substitution:

Answer 12

A reasonable person will not pay more for a property if a comparable one can be had for less.

Question 13

The principle of contribution:

Answer 13

The value of any given change to the property is dependent on the value of the property as a whole.

Question 14

Highest and best:

Answer 14

The most profitable (and legal and possible) use of a property

Question 15

Plottage:

Answer 15

The joining of two adjacent parcels to increase the overall property value beyond what each would be worth if sold separately

Question 16

Regression:

Answer 16

A decline in value due to the decline in value of neighboring properties

Question 17

Progression:

Answer 17

The increase in property value from increased surrounding property values

Question 18

Sales Comparison Approach to Value:

Answer 18

based on the value of similar properties in the market - appraiser look at both qualitative (elemental) and quantitative (unit-based) assets of a property

Question 19

What are the elements of property used in the sales comparison approach?

Answer 19

financing terms and cash equivalency, conditions of sale, market conditions at the time of contract and closing, location, and physical characteristics

Question 20

Cost Approach to Value:

Answer 20

based on the cost to rebuild the property - weighed heavily when property is unique/newly constructed

Question 21

External depreciation:

Answer 21

caused by factors outside the property (e.g., an airport is built nearby, causing noise)

Question 22

Functional obsolescence:

Answer 22

occurs with outdated structure or systems, or when a property is overbuilt for the area.

Question 23

Physical deterioration :

Answer 23

occurs with wear and tear, damage, and improper maintenance.

Question 24

replacement cost approach:

Answer 24

bases value on cost to build a functionally equivalent property.

Question 25

reproduction cost approach:

Answer 25

determines cost to build an exact replica of the property with the same materials and deficiencies.

Question 26

site value approach:

Answer 26

assumes the land is vacant and bases opinion on highest and best use.

Question 27

Income approach:

Answer 27

determines potential property income if leased or rented, or by other means.

Question 28

Gross income multiplier:

Answer 28

Sales price divided by gross annual income.

Question 29

Gross rent multiplier:

Answer 29

Sales price divided by the gross monthly rent.

Question 30

Capitalization rate or cap rate:

Answer 30

An annual rate of return from an income-producing property. Often used by investors to determine value or to compare one investment to another

Question 31

Determine cap rate:

Answer 31

Divide annual income by value (or sales price) (I ÷ V = R).

Question 32

Determine value using the cap rate formula:

Answer 32

Divide annual income by cap rate (I ÷ R = V).

Question 33

Determine income using the cap rate formula:

Answer 33

Multiply cap rate by value (R x V = I).

Question 34

Determine value of home with income approach:

Answer 34

If you know GRM of comparable, multiply monthly annual income by GRM

Question 35

Process of Reconciliation:

Answer 35

Analyzing the findings from the approaches used, and then weighing the findings that each provided.

Question 36

Higher unemployment in market = ....

Answer 36

reduce buyers, downward pressure on housing prices

Question 37

Higher taxes in market = ...

Answer 37

Decrease buying power

Question 38

Lower taxes in market =...

Answer 38

Increase buying power

Question 39

Higher interest rate in market =

Answer 39

fewer buyers, decrease in price

Question 40

Lower interest rate =

Answer 40

more buyers, increase in price

Question 41

CMAs:

Answer 41

not appraisals and are usually prepared at no cost, prepared by real estate licensees.

Question 42

BPOs

Answer 42

prepared by real estate licensees, for a minimum fee, and appraisals generally cost $400 and up -- sometimes ordered by lender in foreclosure situation to determine market price

Question 43

making CMA Adjustments -

Answer 43

adjustments are made to the comparables, not to the subject property.

Question 44

Selecting CMA comparable -

Answer 44

recent sales carry more weight than older sales

Question 45

To find a home’s estimated value (based on price per square foot):

Answer 45

multiply the number of square feet by the price per square foot.

Question 46

Price per square foot is calculated by :

Answer 46

dividing a home’s price by its square footage.

Question 47

Appraisal:

Answer 47

An estimate of value that’s for a specific purpose, party, and property as of a specific date.

Question 48

Broker's price opinion (BPO):

Answer 48

The process used by a hired sales agent to determine the potential selling price or estimated value of a real estate property.

Question 49

Comparative market analysis (CMA):

Answer 49

An opinion of a property’s market price range.

Question 50

Market value:

Answer 50

The price the buyer and seller agree upon.

Question 51

Demand:

Answer 51

How popular or desirable a property is

Question 52

Utility:

Answer 52

The function of the property

Question 53

Scarcity:

Answer 53

Relates to market supply.

Question 54

Transferability:

Answer 54

The ease with which another person can purchase the property