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All of Valuation and Market Analysis
Terms in this set (51)
FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act)
The collapse of many savings and loan associations as a result of the surge into unsound investments was at least partly the consequence of questionable property appraisals. Congress introduced appraisal regulation by passing this in 1989.
An opinion of value; a detailed estimate of a property's value by a professional appraiser. Are required for all federally related transactions (any transaction with a value greater than $250,000), must comply with state and federal standards, and must be performed by a state-licensed appraiser.
CMA (Competitive Market Analysis)
Used by the broker or the salesperson to help the seller determine a listing price for the property; basically, a comparison of prices of recently sold and currently-for-sale properties that are similar in location, style, and amenities to the property of the listing seller. It will generally estimate market value as likely to fall within a range of figures. It also can guide a purchaser in formulating an offer.
Most probable price a property will bring in a competitive market, allowing for reasonable time to find a knowledgeable purchaser. The buyer and seller are not under pressure to act. Payment is made in cash or equivalent.
Defined as the present worth of future benefits arising from the ownership of real property.
A locally determined percentage of market value, which is used by a municipality to establish a property tax.
Replacement cost of a building minus the land value.
Value of an asset less depreciation.
Estimated value of an asset at the end of its economic life.
Demand (Need supported by purchasing power.)
Utility (Capacity to satisfy human wants and needs.)
Scarcity (Finite supply.)
Transferability (Transfer of ownership rights with relative ease.)
Characteristics necessary for a property to have value in the real estate market include? TIP : THINK "DUST"
Highest and Best Use
Most profitable use to which a property may be adapted and given legal constraints.
The value of a property tends to be set by the cost of purchasing an equally desirable and similar property.
Supply and Demand
The price of a property increases if the supply decreases, and decreases if the supply increases.
Maximum value is realized if the land use conforms to existing neighborhood standards.
Increasing and Decreasing Return
Improvements to land and structures produce a proportionate increase in value until some point beyond which the impact of improvements begin to decrease.
High levels of profits attract competitors into an industry; increase in this results in decreased profits throughout the industry.
No economic or physical condition remains constant.
The value of any component of property consists of what its addition contributes to the value of the whole property.
Value can increase or decrease in _________________ of some future benefit or detriment that will affect the property.
Is achieved when adding improvements and structures that will increase the property value.
The principle between dissimilar properties: the worth of the better property is affected adversely by the presence of the lesser quality property.
The worth of a lesser property tends to increase if it is located among better properties.
Reflect overall condition of the economy.
Stable employment and salaries enhance demand for housing and commercial real estate, resulting in an increase in the value of real estate.
Physical and Environmental
Physical conditions, such as building over known earthquake fault lines or over land containing hazardous substances, can result in substantial declines in property values. Environmental conditions, such as climate, can affect property values.
An aging population can increase the development of housing aimed at satisfying the needs of seniors.
Government and Legal
Zoning, as well as other land use controls, can impact the cost as well as the availability of housing alternatives.
Market Data Approach
A value estimate is obtained by comparing the subject property with recent sales of comparable properties through adjustment of sales prices of comparable. Comparable properties used in an analysis should be "arm's length" or a normal market transaction involving willing buyers and willing sellers, as opposed to a foreclosure sale, an auction, or a sale to a relative.
Date of Sale
Terms of Sale
What are the 4 areas of adjustment?
Comparable (and the) Subject Property
You should adjust the price of the comparable for any difference between the ___________________ and the _______________________.
With your dollar adjustments remember to always ___________ your subject property.
CBS (Comparable Better Subtract)
From the comparable the difference between the comparable and the subject property.
SBA (Subject Better Add)
To the comparable the difference between the comparable and the subject property.
Which approach are these steps referring to?
-Estimate the Land Value
-Estimate the replacement or reproduction cost of the improvements.
-Estimate the Depreciation
-Deduct the depreciation from the replacement cost.
-Add the land value to the depreciated cost of improvements-do not depreciate land.
Based on the present value of the rights to future income. Steps in this approach are:
-Estimate the annual potential gross income.
-Deduct the vacancy and rent loss to arrive at the effective gross income.
-Deduct the annual operating expenses to arrive at the annual net operating income.
-Estimate the Capitalization rate.
-Apply the capitalization rate to the annual net income.
Net Income (/) Capitalization rate (=) Value
What is the formula for capitalization rate?
As risk increases, the rate of return increases and the value ______________?
As the risk decreases, the rate of return decreases and the value ________________?
GRM (Gross Rent Multiplier)
Used as a substitute for the income approach in appraising a single-family home.
sales price / monthly rental income = Answer.
monthly rental income x Answer = estimated market value.
GIM (Gross Income Multiplier)
Used as quick way to appraise commercial and industrial properties.
sales price / annual rental income = Answer
What are theses steps referring to?
-State the Problem
-List the types of data deeded and the sources.
-Gather, record, and verify the general data
-Gather, record, and verify the specific data
-Gather, record, and verify the data for the valuation approach needed.
-Analyze and interpret the data
-Reconcile the data for the final value estimate.
-Prepare the appraisal report.
Homogeneous grouping of individuals or businesses within, or as part of a larger community. Residential ________________ generally pass through four stages: Growth, Stability, Decline, and Revitalization.
Physical (Street pattern, relation to the rest of the community.)
Economic (Rent levels, new construction.)
Social (Population density, frequency of crime.)
Governmental(Zoning, and special assessments.)
What are the 4 factors to consider in the Neighborhood Analysis.
Construction cost at current prices of property that would not necessarily be an exact duplicate of the subject property but would serve the same purpose or function as the original. Based on the principle of substitution and steps of the cost approach.
Construction cost at current prices of an exact duplicate of the subject property.
Final step in the appraisal process, in which the appraiser reconciles the estimates of value received from the different approaches to arrive at a final estimate of the market value for the property being appeared. The most relevant approach receives the greatest weight in determining the opinion of value.
A loss of value in property due to all causes, including physical deterioration, functional obsolescence, and economic obsolescence. Generally applies to a wasting asset, such as a building.
Gradual wearing out of a building. (wear, tear, poor maintenance) May be curable or incurable.
A loss in value due to a deficiency in the floor plan or design of a property, such as a two-story house with four bedrooms upstairs and just one bathroom located on the first floor. (outdated items, poor design) May be curable or incurable.
A loss in value due to changes outside the property, such as a recession reducing the demand for the property's neighborhood. (economic, environmental, or locations) Loss of value due to factors outside the property is always incurable.
CMA (Competitive/Comparative Market Analysis)
This analysis is based on properties that were recently sold. Properties competitive with the subject property that are currently on the market. Expired or withdrawn listings that did not sell. Generally groups comparable to indicate a range of values, which serve as the basis for a seller choosing a list price or a buyer choosing an offering price.
THIS SET IS OFTEN IN FOLDERS WITH...
All of Property Ownership
All of Land-Use Controls and Regulations
STATUTES AND RULES GOVERNING LICENSEE ACTIVITIES
All of Financing
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