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Real Estate Exam 4 material
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Delaney 3405
Terms in this set (34)
Real Estate Appraisal
Estimate of value, apprasial used and needed to give market value to land. Real estate prices are unobservable and ever changing. Value is affected by surrounding factors (adjacent buildings, facilitites)
Sales Comparison Approach
What our parents would use, subject property(property that is being sold) is compared to other properties that are similar.
Cost Less Depreciation Approach
Church, Hospital, School: Does not produce steady income stream. Value can be estimated by determining what it would cost to duplicate improvements, minus depreciation, plus land value.
Income Capitalization Approach
(Apartments, shopping centers etc) Value is a function of expected income from operation. Rational Investor would pay NO more than the PV of expected future income that will come from owning and opperating the property
ALL APPRASIAL APPROACHES
Have some degree of uncertainty
intrinsic value
Has value because of what it is or what it is used for. Ex. water & air
Extrinsic Value
value something has as a medium of exchange Ex. Daimonds & Gold
Present Value (PV)
Value today of a future cash flow
Future Value (FV)
the value of something in the future
Value in use
The value a particular peice of property has to a particular individual Ex. Sentimental Value or Historical Value
Use value
the value a particular peice of property has based on its use. Ex. the shops and river square in dowtown waco (Nifas) -> more money in multtitenant setting
Book Value
cost - depreciation
Insurable Value
the value of the improvements at todays prices
Going Concern Value
business can add incremental value to the business (goodwill)
Salvage Value (Residual Value)
What you can sell a peice of property for at the end of its useful life
liquidation value
What we get for an asset in a hurry, usually below market value
Investment Value
what the property is worth to a particular investor at this particular time
Buyer -> value determined by use of property, income generated; the maximum amount a particular buyer will be willing to pay
Seller-> the minimum amount a particular seller will be willing to sell for
Who makes up the market value
Buyers and Sellers make up the market value
Sales Comparison Approach
Used when the subject property is similar to others being sold; provides reliable estimate of what should be sold for.
matched pairs
using very similar properties to determine value of subject property.
Arms Length Transactions
Price resulting from buyer and seller that acts in their best interest = fair market sale
Non-Arm's Length Transaction
Sale of Real Estate between related parties; dump property because of foreclosure; hurried purchase (buyer will pay more than market value to acquire property); sale of real estate for defaulted mortgage.
2 Things that Affect the Price of a Comp Sold
1. Transactional Characteristics
a. arms length
b. non arms length
2. Financing Terms and Conditions
a. Discount Points
Discount Points
A fee charged by the lender at settlement that results in increasing the lender's effective yield on the money borrowed. One discount point equals one percent of the loan amount.Basically prepaid interest. If you pay interest up front, they will give you a lower interest rate.
EACH DISCOUNT POINT INCREASES LENDERS YEILD BY 1/8%
Builder Buy Down
know how it works. Borrower pay lump sum up front to get lower interest rate
Question: Is the sorrower getting a deal or is it mutually beneficial??
Cash Equivalency
Allows us to compare different financing packages on a similar PV basis.
Linkages
time/distance relationship between property and destinations people have to go to on a regular basis. have to consider where potential residents will dwell.
Paired Sales Analysis
Compares properties in one neighboorhood to another. Looks at percentage change in price from neighboorhood A-B.
Cash Equvalency Steps
1 - conditions of sale
2- financing terms and conditions
3 - differences in market conditions
4 - location
5 - physical characteristics
3 ways that realestate is values
1) Sales comparison appraoch
2) Cost less depreciation
3) Income Capitilization
3 Categories of Depriciation
Physical Deterioration
Functional Obsolencense
External (Economic) Obsolecense
Physical Deterioration
A reduction in a property's value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear.
Functional Obsolescence
Does not serve the same purpose today as it used to. tech innovations. Internet , caused by changes in tech, construction methods, characteristics
External Obsolescence
what is adjacent to or around the property, forces or factors around the property that have a negative impact. EX. transition from owner occupied to tenant occupied will cause a decrease in value
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Verified questions
ECONOMICS
An investment company sells three types of pooled funds, Standard (S), Deluxe (D), and Gold Star (G). Each unit of S contains 12 shares of stock A, 16 of stock B, and 8 of stock C. Each unit of D contains 20 shares of stock A, 12 of stock B, and 28 of stock C. Each unit of G contains 32 shares of stock A, 28 of stock B, and 36 of stock C. Suppose an investor wishes to purchase exactly 220 shares of stock A, 176 shares of stock B, and 264 shares of stock C by buying units of the three funds. (a) Set up equations in s, for units of S, d, for units of D, and g, for units of G whose solution would provide the number of units of S, D, and G that will meet the investor's requirements exactly. (b) Solve the system set up in (a) and show that it has infinitely many solutions, if we naively assume that s, d, and g can take on arbitrary real values. (c) Pooled funds can be bought only in units that are non-negative integers. In the solution to (b) above, it follows that we must require each of s, d, and g to be non-negative integers. Enumerate the solutions in (b) that remain after we impose this new constraint. (d) Suppose the investor pays $300 for each unit of S,$400 for each unit of D, and $600 for each unit of G. Which of the possible solutions from part (c) will minimize the total cost to the investor?
ECONOMICS
In recent times, the percent of buyers purchasing a new vehicle via the Internet has been large enough that local automobile dealers are concerned about its impact on their business. The information needed is an estimate of the proportion of purchases via the Internet. How large of a sample of purchasers is necessary for the estimate to be within 2 percentage points with a 98 percent level of confidence? Current thinking is that about 8 percent of the vehicles are purchased via the Internet.
ECONOMICS
Comparing stocks and government bonds, which type of asset has more risk? Which pays a higher average return?
ECONOMICS
For the daily lottery game in Illinois, participants select three numbers between 0 and 9. A number cannot be selected more than once, so a winning ticket could be, say, 307 but not 337. Purchasing one ticket allows you to select one set of numbers. The winning numbers are announced on TV each night. a. How many different outcomes are possible? b. If you purchase a ticket for the game tonight, what is the likelihood you will win? c. Suppose you purchase three tickets for tonight’s drawing and select a different number for each ticket. What is the probability that you will not win with any of the tickets?