question

Define market value.

answer

Market value is the price a willing seller will sell for, and the price a willing buyer will pay, when neither party is acting under exceptional pressure.

question

Another definition of market value is?

answer

Market value is also defined as the most probable price a property will sell for. This is a test question.

question

Define VALUE.

answer

Value is an estimate of the FUTURE BENEFITS to be derived from the property. This is a test question.

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Define PRICE.

answer

Price is generally what one must PAY for a property. This is a test question.

question

Define COST.

answer

Cost is an estimate of PAST EXPENDITURES.

question

What is the ancronym for the four basic characteristics of VALUE and what does each letter stand for?

answer

DUST

question

Define DEMAND.

answer

Demand is a value characteristic and there must be a demand for the item and the purchasing power to acquire it.

question

Define UTILITY.

answer

Utility is a value characteristic and the item must be NEEDED OR WANTED.

question

Define SCARCITY.

answer

Scarcity is a value characteristic and there must be a LIMITED supply.

question

Define TRANSFERABILITY.

answer

Transferability is a value characteristic and the item must be able to be sold. In other words, the ownership rights must be transferable to another.

question

Define CMA.

answer

A CMA is a comparative market analysis and is a tool used by licensees to help sellers determine a realistic PRICE for their property.

question

How does a CMA determine a PRICE for a property?

answer

A CMA compares the subject property to current actives, in contract, solds, and expired/withdrawn/terminated properties resulting in a price range of value for a property rather than an EXACT price.

question

What is another name for a Comparative Market Analysis or CMA?

answer

Competitive Market Analysis

question

Is a CMA an appraisal?

answer

NO

question

Define BOV

answer

This is a Broker Opinion of Value.

question

What is another name for a BOV?

answer

Broker Price Opinion

question

Define a BOV or BPO.

answer

A Broker Opinion of Value or Broker's Price Opinion is similar to a CMA but is used by a relocation firm, or is commissioned by a Bank or and attorney handling a divorce or estate issues.

question

What is the difference between a BOV and CMA?

answer

The broker who produces a BOV is usually PAID. A CMA is usually done for FREE. This is test question.

question

Define APPRAISAL.

answer

An appraisal is an opinion. It is an ESTIMATE of VALUE.

question

How accurate is an appraisal?

answer

An appraisal is only as accurate as the integrity and skill of the appraiser along with the availability of market data.

question

What are the 3 basic approaches to appraisal?

answer

The 3 basic approaches to appraisal are the 1. market data approach; 2. the income approach; 3. the cost approach.

question

What are market data approach, the income approach, and the cost approach defining?

answer

These are the 3 basic approaches to doing an appraisal or estimating or rendering an opinion of value of a property.

question

What is the most common approach used, when rendering an opinion or estimate of value for a residential property?

answer

Market Data Approach

question

What is another name for the Market Data Approach process?

answer

Sales Comparison. This is a test question and this term is what is used on the test for market data approach but know and understand both terms.

question

List the common criteria for the sales comparison or market data approach that an appraiser uses when pulling data from the market.

answer

1. a minimum of 3-5 sales are pulled; 2. data is typically 6 months old or LESS; 3. adjusting for amenities is used; 4. and the best choice of a sold home will be the one with the LEAST amount of adjustments, regardless of cost. (this last statement is a TEST question).

question

What is considered the BEST COMP by an appraiser ?

answer

The one that fits into a certain time line and which has the LEAST amount of adjustments.

question

Define INCOME APPROACH.

answer

The INCOME APPROACH is a form of appraisal and is used on INCOME PRODUCING properties.

question

What is another term for the Income Approach?

answer

Capitalization Method

question

Define CAPITALIZATION METHOD.

answer

The Capitalization Method is the conversion of an income stream into an INDICATION OF VALUE of a property OR, Net Annual Income divided by Cap Rate or ROI x Market Value (better check this formula out, may not be correct).

question

If a property collects RENT, what approach will an appraiser use to determine the VALUE of that property?

answer

The Income Approach OR the Capitalization Method.

question

What IS the Capitalization Rate of a property?

answer

The Capitalization Rate is the rate of return of a property.

question

What is another name for RATE OF RETURN on an income producing property?

answer

Capitalization Rate

question

Explain why the capitalization rate or ROI and MARKET VALUE are an inverse relationship.

answer

The Capitalization Rate or ROI have an inverse relationship with Market Value because when there is an INCREASE in one, there is a DECREASE with the other. So, when the ROI is HIGH, a SMALL investment gives a good rate return but when the ROI is low, a larger investment is needed to get a good return.

question

Define 2 backup procedures that an appraiser uses to give him a starting point, rather than a result (determining the value of a property) when using the income approach on a property.

answer

Gross Rent Multiplier

question

Gross Rent Multiplier is used primarily for what type of property and is an example of what approach?

answer

GRM is used by an appraiser on RESIDENTIAL properties and is a factor based on location and rent or PRICE/RENT

question

What does the GRM actually indicate?

answer

This factor or number, when multiplied by the MONTHLY RENT gives an ESTIMATE OF VALUE for the property.

question

What is the formula used by an appraiser to determine the GRM or Gross Rent Multiplier?

answer

GRM x Rent = price

question

How is the GRM calculated?

answer

The GRM or Gross Rent Multiplier is calculated by taking the subject property's value and dividing it by the monthly rent. This number is generally fairly uniform per neighborhood.

question

State the formula for the

answer

...

question

If a property in a residential neighborhood is valued at $175K and charges $1000/month rent, then the GRM on that property is?

answer

$175k/$1000 = 175 GRM

question

What is a GIM and how does it apply to the income approach used by an appraiser?

answer

Gross Income Multiplier is a back up procedure, used by an appraiser to get a starting point rather than a value on a COMMERCIAL PROPERTY and, is based on the ANNUAL RENT. It works just like the GRM. GIM x Price = Rent

question

The cost approach is also used by an appraiser for other kinds of properties such as:

answer

The cost approach can be used by unique properties such as 1. churches; 2. government buildings; 3. historical buildings; 4. for other buildings when there is NO other comparables out in the current market.

question

Define Replacement cost:

answer

Replacement cost is the cost to build a building of SIMILAR size and usefulness using todays methods and materials.

question

Define Reproduction cost:

answer

Reproduction cost would be the cost to exactly DUPLICATE a building.

question

What is the formula used by an appraiser when using the Reproduction Cost approach when there are NO comparable sales in an area?

answer

Land Value + Building Reproduction Cost - Depreciation = Value

question

What is the formula used by an appraiser when using the Replacement Cost approach when there are NO comparable sales in an area?

answer

Land Value + Building Replacement Cost - Depreciation = Value

question

When using the cost approach, what method will he use to place a value on the land and why?

answer

When using the cost approach, the appraiser will use the MARKET DATA approach because the value of land is heavily dependent on the location.

question

What are the 3 types of depreciation when using the cost approach to determine value of a property?

answer

The 3 types of depreciation are PHYSICAL DETERIORATION; FUNCTIONAL OBSOLESCENCE and EXTERNAL OBSOLESCENCE.

question

Define Physical Deterioration and give an example.

answer

Physical Deterioration is one type of depreciation used by an appraiser when using the cost approach and is considered the ORDINARY wear and tear on a property, it is curable and has the least impact on an appraisal because ALL buildings have it. Examples of this would be chipped paint and worn flooring.

question

Define Functional Obsolescence with examples.

answer

Functional Obsolescence is one type of depreciation used by and appraiser when using the cost approach and is brought about by factors in the property, it is often or mostly curable. Examples of this would be inferior building materials to cut costs, curb appeal or not enough baths or bedrooms.

question

What is the difference between GRM or Gross Rent Multiplier and GIM or Gross Income Multiplier as it applies to the Income Approach used by appraisers for rental property.

answer

GRM IS used for residential properties and is based on the MONTHLY RENT. GIM is used for commercial properties and is based on the ANNUAL RENT.

question

Define economic Obsolescence and give an example.

answer

Economic Obsolescence is a loss of value due to OUTSIDE forces. Also called EXTERNAL and/or ENVIRONMENTAL Obsolescence, is INCURABLE and an example is air pollution, noise, traffic, jobs etc..

question

List the nine 'Principles of Values' used by appraisers to help them arrive at a final opinion of value on a property.

answer

The nine principles of values are 1. Highest and Best Use; 2. Principle of Substitution; 3. Principle of Conformity; 4. Principle of Increasing and Decreasing Returns; 5. Principle of Contribution; 6. Principle of Regression; 7. Principle of Competition; 8. Principle of Change; 9. Principle of Anticipation.

question

Define the principle of value called 'Highest and Best Use' and give an example.

answer

Highest and Best use is the legal use that gives the greatest return in money and/or amenities. An example is commercial parking is more valuable than residential parking.

question

Define the principal of value called "Principle of Substitution" and site an example.

answer

The principle of value called 'Principle of Substitution is a principle that truly sets an upper limit on a price on a property. Why? Because a buyer can not justify in paying more for a property when a similar substitute property can be purchased for less with similar risks and yield.

question

Define the principle of value called "Principle of Conformity" and site an example.

answer

Principle of Conformity states that MAXIMUM VALUE is found when there is a reasonable degree of SIMILARITY or sameness. Properties in the same neighborhood tend to conform in price. (Please note: A test question might be presented as "Maximum Value is seen with the principle of comformity. True or False. Apparently there will be several questions on this value.)

question

Define "Principle of Increasing and Decreasing Return" and give an example.

answer

This principle states that an investor needs to invest in a property whenever each dollar invested will return a dollar OR more of increased value and then STOP when each dollar invested returns LESS than a dollar in value. Another way to say this is "Do not over-improve a property".

question

Define "Principle of Contribution" and give an example.

answer

The value principle of "Principle of Contribution" states that the value of a part, is determined by its contribution to the TOTAL value of the property rather than by its cost.

question

Define "Principle of Regression AND Principle of Progression" and give examples.

answer

The "Principle of Regression" states that the presence of lowered valued properties in the neighborhood lead to a decline in the value of my property. Conversely, the presence of higher valued properties will increase the value of my property and this is called PROGRESSION.

question

Define "Principle of Competition" and give an example.

answer

The "Principle of Competition" states that an increase in competition will result in decreased profits for current providers. The more competition there is, the lower the final sales price.....Supply and Demand

question

Define the "Principle of Change" and give an example.

answer

The "Principle of Change" states that change is constant and is reflected in values. Please note that appraisers must make adjustments for changes in market conditions, and for time. An appraisal is only considered to be accurate for six months or less.

question

Define the "Principle of Anticipation" and give an example.

answer

The "Principle of Anticipatation" states that the purchase price is affected by the expectations of future appeal and benefits.

question

In addition to the 'Principles of Value', list six other factors that can affect property values.

answer

Other factors that can affect value of a property other than the 9 Principles of Value are: Market Cycles; Political Actions; Economic Forces; Physical Forces; Environmental Forces and Sociological Forces.

question

Define Assemblage and give an example of why this process is important.

answer

Assemblage or PLOTTAGE is when several parcels of land are combined into one unit. The result is often times increased usability and increase value altogether.

question

Even though Assemblage and Plottage technically mean the same thing, how are they used and define in real life life situations?

answer

Assemblage is more often used to DESCRIBE THE ACTION of combining several parcels of land. Plottage is more often used to describe the INCREASE USABILITY AND PRICE.

question

What are the 5 steps of the appraisal process?

answer

The 5 steps of the appraisal process are 1. state the purpose of the appraisal; 2. Collect and verify information about the property; 3. Estimate value using all 3 approaches, or as many approaches as needed to get the best result; 4. Reconcile the estimates by determining weighted averages; 5. Prepare the report.

question

Why do appraisers reconcile?

answer

An appraiser must reconcile because the appraisal process will and can result in up to 3 different values using the various approaches. Reconciliation completes the process by determining an exact number rather than a range of value (a range is usually what a Realtor will provide versus an exact number/value).

question

What does USPAP stand for and what does it refer to?

answer

Uniform Standards of Professional Appraisal Practice. The USPAP refers to the rules governing the appraisal process.

question

Does the USPAP require that a special promulgated form always be used by all appraisers?

answer

NO however, it is usually a LENDER REQUIREMENT to us the FANNIE MAE appraisal form if the purpose of the appraisal is to secure RESIDENTIAL FINANCING. (PLEASE NOTE: Memorize the 3 facts above [lender requirement, Fannie Mae and Residential Financing] when this USPAP question is asked...definitely a test question).

question

Define 'Chronological Age' of a property.

answer

Chronological age is the age of the property in years or YEAR BUILT.

question

Define 'Effective Age of a property.

answer

Effective Age tells the condition of the property.

question

Define 'Deferred Maintenance.

answer

Deferred Maintenance is a type of depreciation (ordinary wear and tear) that results from postponing maintenance of the property.

question

Define "LIFE CYCLE" of a neighborhood.

answer

The Life Cycle of a neighborhood is defined as the stages of growth and development consisting of the following stages: Growth, Stabilize, Decline, Revitalize.

question

Define the 'Revitalization' stage of a neighborhood.

answer

The Revitalization Stage of a neighborhood means that the area is up and coming. EX the Heights in Houston, older homes now being improved making them more desirable.

question

How is square footage determined by an appraiser?

answer

By measuring the exterior walls of a property an appraiser can determine square footage. Unfinished spaces are not included. Price per square foot is the properties sales price divided by the square footage of the home.

question

What is GROSS AREA of a property?

answer

the total area of a building measured from the exterior walls excluding uncovered areas such as patios and courtyards. The area under the roof including unfinished spaces such as the attic and garages. (This is a test question.)

question

What is a set back of a property?

answer

A set back is the amount of space required between the lot line and the building line. The set back is usually determined by zoning or deed restrictions. (This is a test question)

question

What is the STRAIGHT LINE METHOD of depreciation?

answer

The 'Straight Line Method' of depreciation is a method of depreciation of EQUAL ANNUAL INSTALLMENT AMOUNTS. Example: $100,000 depreciated over 10 years would be $10,000 per year. Using this method, you can calculate the depreciation of a property (depreciation is gone) OR the depreciated value of a property (depreciated value remains after depreciation is deducted).

question

Define Modular of Module housing.

answer

This is housing that is prefabricated off site.

question

Why do lenders require an appraisal?

answer

To demonstrate COLLATERAL or SECURITY of the property.

question

Why does an appraiser charge a FLAT or HOURLY fee when doing an appraisal?

answer

A flat or hourly fee is charged when doing an appraisal because there would be an ethical conflict if he was paid on the basis of the appraised value of the property. Other rules that an appraiser must follow are: 1. he should not have any personal interest in the property, either present or in the future; 2. he should only reveal his appraisal to his client. If the appraisal is for the purpose of securing financing, then the appraiser client is the LENDER.

question

What does MAI stand for?

answer

Member, Appraisal Institute

question

What types of transactions require an appraisal?

answer

Transactions involving any kind of financing and those involving the courts such as divorce, settling an estate, challenges to Eminent Domain awards and cases of Partition and properties valued over $250K must use an appraisal. Note: In partition cases ONLY AN APPRAISAL may be used NOT a CMA

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