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39 Cards in this Set
- Front
- Back
Value |
The worth of something to someone at a given time fair ma |
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Fair market value |
The most commonly saw Zaw you conclusion for a reasonable, unpressured buyers price but the seller would agree to for a property in the open market, both having reasonable knowledge relevant facts |
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What are some common variations of the principle of value? |
Investment value, insurance value, and value in use |
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Elements of value |
DUST D - demand (number of buyers for property) U - Utility (property’s possible uses) S - Scarcity (availability of similar properties) T - Transferability (sellers ability to transfer a good title to a buyer clear of all encumbrances itemized in the title insurance policy) |
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Clouded title |
If a property can not be transferred with a clean title |
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Influences on value |
PEGS Physical (location) Economic (rents in area etc) Government (property taxes etc) social |
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Principles of appraisal valuation |
Principle of supply and demand, principle of change, principle of conformity, principle of regression, principle of progression, principle of contribution, principle of substitution |
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Principle of supply and demand |
The amount of homes available versus how many want to buy |
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Principle of change |
Holds that the property is constantly in a state of change through its lifecycle |
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What are the four stages of the lifecycle of a property? |
Development, stability, decline, renewal |
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Principle of conformity |
That the price is maintained in the neighborhood and the maximum value of the property can protect homeowners by the narrowing of uses |
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Principle of regression |
The best property in the neighborhood will have a lesser value |
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Principle of progression |
The worst property in the neighborhood will have a higher value |
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Principle of contribution |
The value of one component/improvement is measured in terms of its contribution to the value of the whole property rather than the cost |
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Principle of substitution |
A buyer will not pay more for a property if it will cost less to buy a similar property of equal desirability |
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Appraisal |
An individual’s opinion or estimate of a properties value on a specific date reduced to writing in an appraisal report |
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What are the four steps of the appraisal process? |
Identifying to finding the appraisal effort to be undertaken by the appraiser, data collection, applying the data, and determining the value of the property |
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What are the three approaches to estimate value in a real estate appraisal? |
Market comparison, cost approach, and income approach |
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Market comparison |
Most appropriate for single-family residences, and the basis of comparative market analysis it is used by real estate sales people |
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Cost approach |
Used for especially used properties of churches, schools, and public buildings |
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Income approach |
Valid for properties that generate rental income |
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“Comps” |
Gathering data on comparable properties in order to define appraisal |
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If using the income pros for an appraisal, what are the two methods to arrive at a determination of value? |
The gross rent multiplier (uses the potential or gross rent multiplied by gross rent multiplier to determine the value) or capitalization method (Determines the properties value based on the properties future income and operating expenses using the net operating income dividing it by the number by a capitalization rate to determine the value) |
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What kinds of properties are appraised using the income approach? |
Apartments, offices, industrial buildings, commercial units, and other income producing property |
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What is the first step to establish value using the capitalization approach? |
Establish the effective gross income |
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What is the second step to establish values in the capitalization approach? |
Deduct operating expenses from the effective gross income to determine the net operating income |
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Variable costs |
Operating expenses such as utilities or repairs |
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Fixed costs |
Operating costs that remain constant |
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What are the methods to calculate a cap rate? |
The band of investment, the summation method, market comparison |
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What is the third step to establish value in the capitalization approach? |
Mathematically divide the properties NOI by appropriate cap rate |
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Cap rate |
Comprised of the prudent investors expected annual rate of return on the monies invested in this type of property and a rate of recovery of their invested monies allocated to the improvements, also called appreciation |
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What’s The last step to establish values in the capitalization approach? |
Divide the NOI by the cap rate |
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Appraisal report |
Documentation of the appraisers findings |
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Appraisal report |
Documentation of the appraisers findings |
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What are the three types of appraisal report? |
Short form (I filled in for using checks and exclamations), letter form (a brief written report), narrative report (an extensive report) |
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How do you analyze a rental properties income and expense history under the income approach? |
Depression begins with an annual property operating data sheetAPOD |
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absorption rate |
The estimated time required to sell or lease a property within a designated area and it’s fair market value |
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Ad Valorem |
Real estate taxes imposed on property based on its assessed value |
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Vacancy rate |
The percentage of a building space that is not rented over a givenperiod |