Appraisal (or valuation)
estimate of value of a particular property as of a particular dateIn addition to using age, square footage, location, recent sales—all the things you agents use—I also consider the cost to replace the property.
mortgage value
The value of the property in the eyes of a lender; the amount that the lender is willing to commit to the loan
market value
A price at which a willing buyer and willing seller can strike a deal given ordinary market conditions
investment value
can he get the rate of return he expects
insured value
if the house goes up in flames, what will be the cost of replacing or rebuilding it?
Value in use
The worth of a property as the owner is currently using it
assessed value
The dollar amount to which the local tax rate is multiplied to determine property tax owed
Appraisal
Unbiased estimate of value on a specific property on a specific date
Valuation
ValuationProcess of forming an opinion of a property's value
Evaluation
Study of a property, potentially for land use or marketability
comparative market analysis (CMA)
An estimate of market value based on recent comparable sales for similar propertiesEx. Gwen prepared a comparative market analysis for Jolene and told her, "Based on the sales prices of recent similar properties, I suggest a list price of between $235,000 and $250,000.
broker's price opinion (BPO)
An opinion of value prepared by a real estate licensee; similar to a comparative market analysis, but not as detailed; a lender or relocation company generally orders the BPOEx. Chico's broker's price opinion (BPO) was prepared for XYZ Lending company on a potential foreclosure property
price
The dollar amount agreed upon for the sale of a propertyEx. If the list price for a property is set beyond what the market will bear, buyers will not buy.
cost
(What it would cost to recreate today)Expense for labor, materials and items related to construction such as fees and permits.Ex. The cost to tear down and build anew was cheaper than renovating the existing building
Value
what a property is worth
Four factors that influence value
DemandUtilityScarcityTransferability
principle of anticipation
A term used in valuing income property when using capitalization rate.Ex. The principle of anticipation says that the value of a property is determined in part by the current anticipation of future benefits.
competition
The more similar properties that are on the market, the lower the price will be driven.
Conformity
value is created and maintained when the characteristics of a property conform to the demands of the market. For example, a house built in the middle of a commercial zone (due to zoning changes) would be valued differently than a house in the middle of a neighborhood made up of similar houses.
Contribution
A change in a property impacts the value as a whole. Does converting a garage into a family room contribute to or detract from value? That would be in the eyes of the buyer.
Highest and Best Use
This is the most profitable use that is both legal (conforms to zoning) and economically feasible (won't cost more than the increase in value).
Plottage
The joining or assemblage of two neighboring land parcels increases the property value. In such a case, 1+ 1 often equals 3 or even 5. So two parcels worth $40,000 separately might be worth $120,000 when joined.
Regression
This is the value a higher-quality property loses by being near a lower-quality property.
Progression
This is the value a lower-quality property gains by being near a higher-quality property. For example, if your neighbor builds on a second story in a quality remodel, the bump in value that your property receives is progression.
Substitution
A property's value is determined by what it would cost to purchase a similar substitute property. If someone offered you a car that is an exact replica of another car but was $3,000 less, it would impact your perceived value of the other car.
Unit 1 Exam:The Hendersons were hoping to list their home for $400,000; however, four other comparable homes in the neighborhood just went up for sale, and they now must list their property at $380,000 to sell quickly. Which economic principle is at work here?CompetitionConformityProgressionSubstitution
Competition
Unit 1 Exam: John's home is up for sale. He originally bought it five years ago for $300,000. Its current value is $350,000. His real estate agent notified him that a buyer just made an offer on his home for $365,000, which is the price other similar homes in the neighborhood are selling for and John accepts. What does the price of $365,000 represent?The appraised valueThe assessed valueThe investment valueThe market value
The market value
Unit 1 Exam: Another term for a valuation is ______.AssessmentComparative market analysisEvaluationFormal appraisal
Formal appraisal
Unit 1 Exam: Marcus bought two adjoining pieces of land that were zoned for commercial use. When he realized that combining the two parcels would dramatically increase the land's value, he jumped at the opportunity. What's this an example of?ContributionEminent domainPlottageZoning
Plottage
Unit 1 Exam: Your client is purchasing a single-family home with a conventional loan. The listing price is $410,000. Does this situation require a licensed or certified appraiser?It may be required, depending on in which state the property is located.It's at the seller's discretion.No, it's not required.Yes, it's required.
Yes, it's required.
Unit 1 Exam: What economic principle is related to a property's most profitable use that is both legal and economically feasible?AnticipationContributionHighest and best useProgression
Highest and best use
Unit 1 Exam:Which factor that influences value considers the property's function?DemandScarcityTransferabilityUtility
Utility
Unit 1 Exam:Which of these principles of value is related to how a change to a portion of a property impacts the value as a whole?ContributionImpact on valuePlottageProgression
...
Unit 1 Exam: Which of these principles of value is related to how a change to a portion of a property impacts the value as a whole?ContributionImpact on valuePlottageProgression
Contribution
Unit 1 Exam:Mary Ann is looking for the potential rate of return. What sort of value is she interested in?Assessed valueInvestment valueMarket valueValue in use
Investment value
Unit 1 Exam: Juaquin is an appraiser. What purpose do Juaquin and other appraisers serve?Buy a propertyCause a sale to go throughDetermine a property's valueMake a real estate agent's life better
Determine a property's value
sales comparison approach
sales comparison approachAn approach to determining value using similar recent sales dataEx. Both licensees and appraisers use a sales comparison approach when arriving at an estimate of value.
substitution
The principle that a property's value is determined by what it would cost to purchase a similar substitute property
cost approach
cost approachAn appraisal valuation method based on the cost to replace or reproduce a propertyEx. Appraisers often use the cost approach for new construction or for unique properties that do not have recent comparables. i.e. new construction areas
income approach
uses the income the property generates to estimate value. This type of valuation is based on defining the present value of future income, and the value principle of anticipation.
Burt owns a development company that specializes in constructing new, energy-efficient houses. The best approach for an appraiser to use in the appraisal of Burt's newly built homes is the ______.Appraisal processCost approachIncome approachSales comparison approach
Cost approach
Nearby industrial odor is an example of which type of depreciation?Curable depreciationExternal depreciationFunctional obsolescencePhysical depreciation
...
In the sales comparison approach, using comparables that are five and 15 years old when appraising a subject that is 10 years old is an example of what?BracketingBridgingSubstitutingSurrounding
Bracketing
A strip mall valued at $850,000 has a $67,500 annual net operating income. What is the capitalization rate for the strip mall?
7.9
Which of the following is a true statement about how adjustments are made in the sales comparison approach?Adjustments are made to the subject property, not the comparables.Appraisers adjust downward when a comparable is missing a feature found in the subject property.Appraisers adjust upward when a comparable is missing a feature found in the subject property.Only three adjustments per comparable property are allowed; otherwise it's not considered sufficiently similar.
Appraisers adjust upward when a comparable is missing a feature found in the subject property.
In the sales comparison approach, which of these are selected and evaluated both quantitatively and qualitatively against the subject property?AlternativesComparablesConformablesSubstitutions
Comparables
With the cost approach to value, what is the reproduction cost?Cost of the materials used in constructionCost to build a functionally equivalent improvementCost to build an exact replica of the subject, with the same materials and deficienciesCost to buy the property
Cost to build an exact replica of the subject, with the same materials and deficiencies
The economic principle of ______ says that when there are two houses in the same neighborhood with the same size, appeal, and utility, the lower-priced one will tend to sell first.CorrelationSubstitutionSupply and demandUnder-bidding
Substitution
A property generates $30,000 in net operating income and has a 15% cap rate. Using the income approach, what is its value?
200,000
Formal guideline for appraisals
Uniform Standards of Professional Appraisal Practice
USPAP Steps
1. State the problem2. Identify data needed 3. Gather and analyze data4. Determine highest and best use5. Estimate value of the land6. Use three approaches to estimate property value7. Reconcile values to determine final appraisal value8. Report appraisal value
federally related transaction
the loan will not be sold on the secondary market and isn't guaranteed or insured by a government entity such as FHA or VA- Residential properties under $400k are exempt
What does FIRREA require?
A certain individual perform the appraisal
Unit 3 Quiz:What two types of data does an appraiser gather?Computer and hand-writtenGeneral and specificOld and newRelated and non-related
General and specific
Unit 3 Quiz: Jerry is appraising a five-bedroom home in the suburbs. After identifying the purpose of the appraisal, what does he need to do next?Determine the highest and best use.Estimate the value of the land.Identify the data that is needed.Use three approaches to estimate the value.
Determine the highest and best use.
Unit 3 Exam: Soren is an appraiser. As such, what guidelines must he follow?NAR Code of EthicsNational Association of Appraisers (NAA) bylawsReal estate license lawUniform Standards of Professional Appraisal Practice (USPAP)
Uniform Standards of Professional Appraisal Practice (USPAP)
Unit 3 Exam: When appraisers look past how a property is being used to determine a more optimal function, what are they determining?Cost to replaceHighest and best useMarket valueValue in use
Highest and best use
National Association of REALTORS Code of Ethics, Article 11 - Tenets of a CMA
-Identification of the subject property-Date prepared-Defined value or price-Limiting conditions, including statements of purpose(s) and intended user(s)-Any present or contemplated interest, including the possibility of representing the seller/landlord or buyers/tenants-Basis for the opinion, including applicable market data-If the opinion is not an appraisal, a statement to that effect
Unit 4 Exam: When presenting a CMA, if you take the time to explain the CMA process, help the prospective sellers understand what's behind the numbers, and ultimately leave the decision of the list price up to them, what characteristic have you demonstrated?DocumentationEffective communicationLaw-abidingPrecision
Effective communication
Unit 4 Exam: When you use a comparative market analysis to calculate a suggested listing price range for a particular property, which of the following actions will you take?Adjust prices from all properties listed or sold within a one-mile radius of the subject property.Calculate a price range based on data from expired listings and pending sales.Use adjusted prices from comparables and refine a range using active listings, expired listings, and possibly pending listings.Use the prices of sold comparables and active listings, adjusted for time listed.
Use adjusted prices from comparables and refine a range using active listings, expired listings, and possibly pending listings.
Unit 4 Exam: You need to perform a sales comparison for your clients. Comparable A's adjusted sales price is $277,000. Comparable B's adjusted sales price is $255,000. How might you use this data to determine a list price range for the clients' home?Find the average of the adjusted sales prices of Comparable A and Comparable B.Give more weight to the list price on Comparable A, because it's lower.Give more weight to the list price on Comparable B, because the subject property will likely sell more quickly at this higher price.Give more weight to the list price on the comparable that's most similar to the property.
Give more weight to the list price on the comparable that's most similar to the property.
Unit 4 Exam: When a real estate professional goes beyond a broad brushstroke approach to a CMA and takes the time to research not only recent sales, but competition and expired listings, what trait are they exhibiting?DiligenceDocumentationEffective communicationEmpathy
Diligence
Unit 5 Exam: A home enters the market priced above fair market value. Within the same time frame, three additional homes enter the market listed between 5% and 10% less than the first home, at a fair market price. What is likely to happen with the first home?
If a property is overpriced from the beginning, buyers will move on and likely make a purchasing decision before the price is corrected on the overpriced home.
Unit 5 exam: When market conditions indicate top-of-the-market pricing, is it always in your client's best interest to price it there?
No, it still has to appraise.
Unit 5 Exam: An agent lists a home that receives an offer for full list price within one day in a buyers' market. There is a chance the agent ______ the home.
Underpriced
Unit 5 Exam: What are some ways you can make sure you're pricing a property at fair market value?Ask the sellers what the sales price should be.List to sell as fast as possible.Prepare a well-researched CMA.Price it at the price the house originally sold for to be fair.
Prepare a well-researched CMA.
Unit 5 Exam: Getting the best price is always a factor for a seller, but the ______ that it actually would sell for must be another consideration.GuesstimateHighest priceMarket priceReduced price
Market price
Unit 5 Exam: Interest rates determine buying power. Which of the following is a true statement?When interest rates are high, buyers are often priced out of the market.When interest rates are high, buyers will be able to afford higher-priced homes.When interest rates climb, more buyers are encouraged to buy.When interest rates shift higher, buyers can still buy in the same price range.
When interest rates are high, buyers are often priced out of the market.
Unit 5 Exam: An agent is working with seller clients who are very emotionally attached to their home. They want to list the property at $330,000, but the CMA indicates a price range of $255,000 to $275,000. What is the best course of action?Explain the importance of fair market value and offer to walk them through the process.List the home for $300,000 because it's a good compromise.List the home to sell, so start with the lower end of the CMA.Start with listing for $330,000 and see if you get any interest.
Explain the importance of fair market value and offer to walk them through the process.
Unit 5 Exam: What's the best advice when challenging an appraisal?Be specific and concise about why the value opinion is different in your mind.Blame it on the appraiser.Don't bother asking the appraiser to explain why certain adjustments were made or not made.Suggest a minimum value for the appraiser to meet.
Be specific and concise about why the value opinion is different in your