Reu3ch12-13

What is an appraisal?

What is the first step in the appraisal process?

What does the sales comparison approach do?

What does replacement cost include?

What are the three types of depreciation included in the cost approach, and which one is almost always incurable?

What is the difference between effective age and chronological age?

How does the income approach work?

What are the steps involved in the income approach?5

The higher the cap rate, the lower the what?

______. ______Analysis provides an insight as to properties currently on the market, pending, sold and the listed prices of expired properties on the market.

Appraisal process7

The Sales Comparison Approach (sometimes called the Market Data Approach):

___________Approach is based on the present value of the rights to future income. This is for income generating properties. The steps are as follows:
Estimate the annual potential gross income.
Deduct an allowance for vacancy and collection losses to arrive at Effective Gross Income.
Deduct the annual operating expenses of the real estate from this effective gross to get a net operating income.
Estimate the price a typical investor would pay for the income produced by this particular class and type of property. This is accomplished by estimating the rate of return that an investor would demand for this investment. This rate of return is called the Capitalization (Cap) Rate.
Finally, the capitalization rate is applied using this formula:
Divide the NET INCOME by the CAPITALIZATION RATE to get VALUE.
Divide the NET INCOME by the VALUE to get RATE.
Multiply the VALUE by the CAPITALIZATION RATE to get NET INCOME.

The____Approach is based on the principal of substitution and it consists of the following steps:
Estimate the value of the land as if it were vacant. Land is never depreciated for appraisal purposes.
Estimate the current cost of constructing the building for site improvements.
Estimate the amount of accrued depreciation resulting from physical deterioration.
Deduct accrued depreciation from the estimated construction costs and add the estimated land value to the depreciated cost of the buildings.

When more than one approach is applied to determine the value there is a _______step._______ is the art of analyzing and effectively weighing the findings, according to the appraiser's best judgment, to determine the most accurate value. The final value determination is NOT an average of values reached by the different approaches.

An appraiser is usually paid a fee
based on a percentage of the appraised value.
based on the amount of time and effort expended.
agreed upon after the appraisal is completed.
set by the National Appraisal Association for the type of property.

An appraiser finds a property in the same location which has sold and wants to use it as a comparable sale. This property has fewer bedrooms, one more bath, and no garage. What will the appraiser need to do to make the properties equal?
Find a different property because he/she cannot make properties equal when they are so different.
The appraiser will need to add the difference in bedrooms to the comparable sold price, subtract a bathroom from the comparable sold price, and add a garage to the comparable sold price.
The appraiser will need to subtract the extra bedrooms from the comparable sold price, add a bathroom to the comparable sold price, and subtract the garage from the comparable sold price.
The appraiser will need to add the extra bedrooms to the comparable sold price, add the bathroom to the comparable sold price, and add a garage to the comparable sold price.

What is the final step in the appraisal process?
Estimate the value of the property
Reconcile estimated values
Estimate land value
Record necessary data

What is the NOI on a property valued at $500,000 with a cap rate of 5.2%?
$2,600
$26,000
$5,200
$18,000

What is the value of a property which has an NOI of $9,000 with a 3% cap rate?
$300,000
$270,000
$350,000
$250,000

Gathering facts about a neighborhood to determine the appeal to the buyer is included in which step in the appraisal process?
Neighborhood Cycle
Site Analysis
Analyze and Interpret
Neighborhood Analysis

Using the Cost Approach, an appraiser must determine depreciation. The types of depreciation include all of the following EXCEPT
Physical deterioration
Functional deterioration
Economic obsolescence
Functional obsolescence

When an appraiser uses the phrase 'effective age,' he is referring to what?
The number of years since improvements were made
The age of the property based on its condition
The estimated total life of an improvement
The number of years during which the property will yield a worthwhile return on investment

Peeling paint on a home is an example of
inferior product selection.
economic obsolescence.
functional obsolescence.
physical deterioration.

Loss of value to a home in a neighborhood that is deteriorating is caused by what?
Functional obsolescence
Physical deterioration
Curable obsolescence
Locational obsolescence

The income approach is also referred to as the
income capitalization approach
sale price approach
budget approach
fixed cost approach

Which appraisal approach looks at functional obsolescence?
The Comparable Sales Approach
The Cost Approach
The Income Approach
The Market Data Approach

Which of the following is NOT part of the Analyze and Interpret step in appraisals?
Site cycle
Site analysis
Neighborhood cycle
Neighborhood analysis

The goal of an appraiser is NOT
determining the market value of a property.
determining the sentimental value of a property.
determining the insurance value of a property.
determining the tax value of a property.

Market value is defined by all EXCEPT
the assumption that the buyer and seller are sufficiently informed.
the allowance of a reasonable time for market exposure.
the relation to the price for which the property should sell in the open market.
the consideration of the price for which the property was last sold.

Name four reasons determining the value of a property is important.

What is the definition of highest and best use?

The definition of highest and best use is that use that is:

Which system of value determination is an educated guess because it is difficult to find matching properties?

What is the formula used in Gross Rent Multiplier?

What is the formula used in Gross Income Multiplier?

What is a competitive market analysis (CMA) used to determine?

What are the three main steps of a CMA?

What is the primary goal of a property investor?

These are assumption of _____

The seller can provide a marketable title;
Both buyer and seller are well informed and not related to each other;
Neither buyer or seller are under duress, menace or undue influence;
Market value refers to a specific date;
The property is on the open market and exposed for a reasonable time;
The terms are cash or its equivalent.

________states that maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable replacement property.

Principle of________ states that the value of a property will increase if the supply decreases and the demand either increases or remains constant and vice-versa.

means that maximum value is realized if the use of the land conforms to existing neighborhood standards.

_______ and ________means the value of the better quality property is affected adversely by the presence of the lesser quality property and a lesser house will benefit from a larger house.

_______means property can increase or decrease in value in expectation of something in the future such as appreciation or rezoning.

________means the value of any component may or may not give value to the whole.

is the combining of two or more adjoining lots into one larger tract to increase their total value.

states that excess profits tend to attract competition and change. The principle of change states that no physical or economic condition remains constant.

___means real property is constantly changing- expanded, stabilizing, declining or rebirth.

Steps of CMA: competitive market analysis3

A______ rate is simply the investor's desired return on the investment (profit) plus the expected return of the investment over its remaining economic life.

The return on the investment consists of the two portions of the risk interest rate - the___-___ portion (that the investor could get in any asset while sleeping soundly every night), plus the "____" portion expected because of the time and effort expended to manage the real property investment.

Then the risk interest rate is added to the recapture rate to come up with the overall______ rate in the I/RV formula of the income approach to value. This rate may vary greatly depending on the investor's desires and the property's actual performance in the market.

___________ is the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.
Investment value
Liquidation value
Market value
Tax value

The cap rate is made up of which two parts?
Return on investment and Risk Interest Rate
Risk Interest Rate and Grief Allowance
Grief Allowance and Recapture Rate
Recapture Rate and Risk Interest Rate

Which BEST describes the principle that a home maintains its highest value by being in a neighborhood with similar-type housing?
Competition
Highest and best use
Regression and progression
Conformity

Based on the Principle of Substitution, the main steps of a CMA include all but
locate comparable properties.
compare the subject to the comparables.
determine appraised market value.
reconcile comparable information and draw the value conclusion.

What is the gross annual income on a property with a market value of $500,000 and an annual income multiplier of 25?
2,000
20,000
2,500
25,000

If a comparable currently on the market is distressed, what will that affect?
The appraisal
The GRM
The CMA
The annual income multiplier

The return on the money invested is called
profit.
recapture rate.
return on investment.
risk interest rate.

To create a CMA, which of the following is not necessary?
Comparable homes close to the same age
Comparable sold data of at least one year old
Comparable homes not in disrepair
Comparable homes with same number of bedrooms, baths, garages

Paul is planning to purchase the convenience store for $450,000. He has been told the annual income on this store is $50,000. What is the annual multiplier?
7
125
50
9

The appraisal principle of value based on the concept that the more a property or its components are in harmony with the surrounding properties or components, the greater the value is called
progression.
conformity.
the law of supply and demand.
highest and best use.

The usual definition of highest and best use is that use that is
optimally located.
legally permissible.
appropriately priced.
in demand.

_______________ is the increased value resulting from the combining of adjacent lots into one larger lot.
Assemblage
Plottage value
Contribution
Anticipation

Define recapture rate?
The amount of money recaptured from defaulting tenants
The rate of interest earned on the money invested
The return of the money invested plus interest
The return of the money invested

Which principle is the market data approach based on?
Conformity
Change
Anticipation
Substitution

The return of the money invested in investment property is called
risk interest rate.
reconciled investment rate.
recapture rate.
capitalization rate.

Compute the value of a property where the monthly rent is $1500 and the multiplier is 104.
$156,000
$142,000
$69,000
$169,000

What is one indication of how long the seller's home might take to sell?
Number of bedrooms
Home's square footage
Number of days comparables have been on the market
Appraiser's value

The decision to convert a two-family residential home into a commercial office, housing a real estate firm, and an insurance company is an example of what appraisal principle?
Plottage increments
Highest and best use
Anticipation
Regression and progression

What is the formula for finding the annual income of a property?
Divide market value by annual multiplier.
Multiply annual multiplier by market value.
Subtract annual multiplier from market value.
Divide annual multiplier by market value.

_________ is how much cash it takes to build and improve property.
Value
Price
Financing
Cost