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  • Appraisal

    is supported estimate or opinion of value

    Elements of Value (STUD)

    Scarcity
    Transferability
    Utility
    Demand

    Forces that affect value (PEPS)

    Physical characteristics- size, shape, location, soil conditions and exposure
    economic - interest rates
    political- government regulations
    Social- neighborhood interest affects values

    Neighborhood Cycle

    Are the growth, stability and decline of the neighborhood based on social conformity.

    Market Value

    Present worth of future benefits
    What we hope to get.

    Market Price

    Exact dollar the property sells for

    Objective value

    Factual value

    Subjective Value

    Perceived value based on use

    Economic Principals of Valuation

    Highest and best use
    Supply and demand
    Substitution
    Contribution
    Plottage/ assemblage
    Conformity
    Change
    Anticipation
    Competition

    Highest and best use

    Most profitable single use for a property

    supply and demand

    Supply short, demand heavy prices go up.
    Supply high, demand low, prices go down.

    Substitution

    Lower price property will sell first

    contribution

    Do not spend money on a property unless it contributes to its value or the income you will get from the property

    Over improvement

    Improvements that don't add value to the home

    Increasing and Diminishing Returns

    Determines of something is a wise improvement to a property or not.

    Plottage

    Dividing a larger parcel into smaller parcels

    Assemblage

    To assemble a number of parts to give them a greater value

    Conformity

    Reasonable degree of

    Progression

    Lower price homes will go up in value towards prices of higher price homes

    Regression

    Higher price homes will go down in value towards the price of the lower price homes

    Principle of progression and regression

    If there are both high and low priced homes in an area people normally don't want to buy the highest priced homes.

    Change

    Nothing remains the same

    Anticipation

    Anticipate that the property is going up in value

    Competition

    Excess profits tend to attract this

    Competitive Market Analysis (CMA)

    Market data approach and sales comparison approach
    Most effective way for single family dwellings
    Comparing recent sales to verify data and make adjustments to come up with a value for a property we are appraising

    Important when making adjustments

    Date of sale- recent sale
    Location- roughly same location
    Physical Features- adjust comps up down to meet subject property.

    Terms and Conditions of Sale

    Property you are comparing must have been sold under about the same conditions you plan to sell the subject property

    Cost Approach

    Has nothing to do with original cost
    Is based on the principle of substitution which states the maximum value of a property tends to be set by the cost of acquiring an equally valuable substitute property.
    Cost to Replace- Accrued Depreciation+ land=

    Replacement Cost

    Cost to get a building that had the same utility; however it need not be an exact duplicate

    Reproduction Cost

    Cost to get an EXACT duplicate

    Depreciation

    Any condition that adversely affects the value of property
    Land can not be this...

    3 types of depreciation

    Physical
    Functional obsolescence
    Locational Environmental/ economic obsolescence

    Physical Deterioration

    Normal maintenance and wear and tear of the property

    Cureable

    Economically makes sense to repair

    Incurable

    Economically makes no sense to repair

    Functional Obsolesence

    Can be curable or incurable deals with the uses with in the property

    Locational, environmental , economic obsolescence

    Are incurable - has to do with the location

    Income Approach

    Assumes the net income derived from the property will control the value. Not concerned with gross income.

    Net Operating Income

    = gross income-vacancy - expenses

    Cap rate

    Rate of return received on an investment
    Are annual unless otherwise stated

    ROI

    Return on Investment

    Gross Rent Multiplier

    Estimate value of rental properties
    =sale price/ gross income
    Very seldom used

    Steps of Appraisal process

    State the Problem (why do they want the appraisal)
    List data required
    Gather record and verify data
    Analyze and interpret data
    Apply up to three approaches to value
    Reconcile or Correlate data or Estimate value

    Appraisal Reports

    Short form
    Uniform Residential appraisal report- required for govt backed loans
    Lengthy written Narrative Report- most comprehensive

    Appraisers qualifications

    Paid flat fee
    Must be licensed in SC
    Can not pay referral fees
    Can not charge a fee based on a % of appraised value

    Appraisals are good for

    No specific time period

    Info obtained in an appraisal can

    Change day to day as needs change.

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