Upgrade to remove ads
Missouri Practice Course (Set #4)
Terms in this set (69)
an unbiased estimate of the nature, quality, value or utility of an interest in or aspect of identified real estate and related personalty as of a certain date.
Before taking the risk, lenders want some level of assurance that their repayment obligation will be honored. What are 2 examples of this assurance?
One of the best assurances of this is the knowledge that the mortgaged property will generate enough income to meet the loan commitment. A second level of assurance comes from knowing that the borrower can meet the financial obligations.
comparative market analysis
Is a CMA an appraisal?
Three approaches for an appraisal
Sales Comparison approach
is the process of estimating the value of an identified interest in specific property as of a given date
The purpose of a Valuation
is largely to determine a property's market value, which we will talk about in a few minutes
Types of Value
Use value (also known as value-in-use)
the amount of the return on an investment that an income-producing property will produce.
is the face amount a casualty or hazard insurance policy will pay in case a property is deemed unusable.
Use Value (also known as Value-in-use)
is the value the property holds for the owner. Several factors contribute to this value.
the value the lender places on a property as collateral for the loan, especially in the event of a foreclosure when the lender must recover the debt through the sale of the property.
The value that results from comparing the property to other similar properties on the open market. This is the type of value that real estate agents are concerned with.
The value based on the cost of constructing a precise duplicate of the subject property's improvements, assuming current construction costs.
The value based on the cost of constructing a functional equivalent of the subject property's improvements, assuming current construction costs.
The nominal value of a property that has reached the end of its economic life. Salvage value is also an estimate of the price at which a structure will sell if it is dismantled and moved.
The value of a property as estimated by a taxing authority as the basis for ad valorem taxation.
The value set by a county or municipal authority for a property which may be taken by eminent domain.
A value established by subtracting accumulated depreciation from the purchase price of a property.
An estimate of the rental rate a property can command for a specific period of time.
is a study of the nature, quality, or utility of certain property interests in which a value estimate is not necessarily required. (looks for a number of economic principals that INFLUENCE the value of a property)
The benefits a buyer expects to receive over the period of time he or she has the property influences the decision to purchase it. The value of the property can increase or decrease depending on whether the anticipated change is a benefit or a disadvantage. For example, a buyer hears that the property down the street may become a shopping mall. Is that a benefit or a disadvantage? It may depend on the buyer's viewpoint.
When two adjacent pieces of property are joined together, the value of the one larger parcel may be greater than the value of the two separately. For example, two lots are valued at $25,000 each, but when combined for one use, they have a value of $60,000.
The extra value created by merging the two parcels
Both market conditions and a property's physical condition change constantly over time. These changes affect the benefits of the property. Using our shopping mall example again, is the construction of a mall a benefit or a detriment to the property's value? An appraiser needs to keep abreast of these types of changes.
This principle says that a property is at its highest value when it conforms with and fits into its surroundings. If a three-bedroom, one-bath home is in a neighborhood where all the homes have two bathrooms, it might be wise for the owner to consider installing a second bathroom.
This principle holds that when several businesses of a similar type are close to one another, together they may make more money than they would have individually. For example, several fast food chain restaurants located on the same major street attract more buyers than one fast food restaurant would if it sat by itself
This is what the market recognizes as the change in value an improvement makes to a property, rather than what that improvement actually cost. A remodeled kitchen might add $50,000 to the value of a home, while the actual cost could have been anywhere from $25,000 to $75,000.
This condition is a result of continuing to add improvements to a property when those improvements will have no effect on increasing the value of the property.
Highest and Best Use
According to this principle, every property has a single use which produces the greatest income and return. Therefore the property will have its highest value when it is used for that purpose. The property's use must be:
Progression and Regression
This principle holds that a property is affected by the surrounding properties. The value of the "smallest house on the block" will tend to increase if the other homes on the street have more value - progression. On the other hand, the value of the "largest home on the block" may decrease if the other homes on the street are much lower in value - regression.
According to this principle, a buyer will not pay more for a home than what he or she would pay for another home that is equally attractive and available. For example, if there are several homes for sale in a neighborhood and they are alike in size, quality and amenities, a buyer won't usually purchase the home with the highest price.
Supply and Demand
This principle says that the value of a property depends on
How many properties are available in an area
Number of prospective buyers
Price buyers are willing to pay
The highest price a buyer is willing to pay, and the lowest price the seller will accept.
The most probable price, as of a specific date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should be sold after reasonable exposure in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress
Market Value vs Market Price
Value:opinion of the value based on analyzing data collected about the property
Price: The amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding the actual sales price
When are market value and cost the SAME?
2 Types of cost
Direct and Indirect
Also called hard costs. Includes the cost of labor and materials
Costs that support a given project.
Architectural and engineering fees
Taxes during construction
Explain the difference between market value and market price.
Market value is an opinion of the value of a property based on analyzing data collected about the property.
The market price of a property is the actual sales price and can in some circumstances be greater or lesser than market value.
What does the term anticipation mean as it relates to property value?
The benefits a buyer expects to receive over the period of time he or she holds the property
Grace and Paul spent $75,000 on a complete remodel of their kitchen. What does this mean to the value of their home?
It depends on what the market recognizes as the change in value the improved kitchen makes. A remodeled kitchen might add $50,000, $75,000 or even $100,000 to the value of a home.
Explain the principle of substitution.
Substitution says a buyer will not pay more for a home than what he or she would pay for another home that is equally desirable and available.
Three approaches to estimating value that appraisers use
Sales comparison approach
Sales comparison approach
is based on the principle of substitution - which says that a buyer will not pay more for the subject property than he or she would pay for a property that is similar in characteristics and amenities.
Which approach is the most reliable for appraisals?
Sales Comparison approach
Is most reliable for properties that were built recently, since the appraiser can get access to the actual costs of the development and construction. It's also a good approach for special purpose buildings when data on income is not available or there are no comparable sales.
is the construction cost at today's prices of producing an exact duplicate of the current building, including its improvements and its flaws.
is the construction cost at today's prices of producing a similar or equivalent structure. This method is most popular when appraising older buildings with outdated features. Newer materials and techniques can replace the outmoded ones
How do you determine depreciation?
Use the breakdown method
Estimate the value of properties that produce income, usually from rent paid on leases. This approach assumes that an investor will purchase a property based on the future income stream the property will produce
The sales comparison approach is thought to be the most reliable appraisal approach for what kind of property?
The sales comparison approach is thought to be the most reliable for appraisals of single-family homes.
What's the difference between reproduction cost and replacement cost?
Reproduction cost is the cost at today's prices of producing an exact duplicate of the current building, including its improvements and its flaws.
Replacement cost is the construction cost at today's prices of producing a similar or equivalent structure.
Jim is using the cost approach to appraise Greg's property. John has the following figures: land value $25,000, building value $137,500, total depreciation, $33,000. Using these figures, what will John estimate as the total value of the property?
$129,500 ($137,500 - $33,000 + $25,000)
The income approach is based on which two principles of value?
Anticipation and substitution
The cost approach would be most reliable for what type of property?
New homes or special buildings
The sales comparison approach is based on the principle of
The cost of today's prices of producing similar or equivalent structure is known as
Tim and Sure have the smallest home in a sought after neighborhood. The value of their home is increased because of the higher value of the other homes in the neighborhood. This is an example of what principle?
Progression (smallest house on the block)
Which of the following problems would be an example of incurable depreciation?
Highrise without an elevator
The highest price a buyer is willing to pay and the lowest price the seller will accept for a property is known as?
What the market recognizes as the change in value an improvement makes to a property is call what?
All of the following are conditions for highest and best use EXCEPT which one?
The actual price of a property is known as what?
A property is being appraised by the cost approach. The appraiser estimates that the land is worth $10,000 and the replacement cost of the improvements is $75,000. Total depreciation from all causes is $7,000. What is the indicated value of the property?
Salvage value refers to the nominal value of a property that has reached the end of its______________.
What is the first step in the cost valuation approach?
Approximate land value
The sales comparison approach is based on what principle of value?
The income capitalization approach, or income approach, is more specifically used for appraising what?
Income or rental properties
This set is often in folders with...
Missouri Course (#3)
Missouri Practice Course (Set #1)
Missouri Practice Course (Set #2)
Missouri Practice Course (Set #5)
You might also like...
24 Hr Chapter 7
Chapter 12: Value
Appraisal and Market Value
7 LAW AND PRACTICE- EXAM
Other sets by this creator
National Real Estate Exam Review
Real Estate Brokerage
Other Quizlet sets
Ch. 21 Real Estate Appraisal
RE CH9: Appraisal
Valuation Usign Sales Comparison and Cost Approach…
Accounting Terms (Chapter 9)