Chapter 17 Real Property Valuation

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  1. Appraisal
    an estimate or opinion of value of a specific property as of a specific date.
  2. Licensed real estate brokers are allowed to perform a ____ and are only allowed to be compensated if it is done for a prospective or current brokerage client.
    CMA (Comparative Market Analysis)
  3. For a property to have value in a real estate market, it must have: (4)
    Demand, Utility, Scarcity, and Transferability
  4. Market Value vs Market Price vs Cost
    Market value is a reasonable opinion of a property's value; Market price is the actual selling price of a property; Cost is how much money the owner has put into the property and may be different than both market value and market price.
  5. Forces and Factors affecting property value (4).
    Social, Economic, Political, and Physical Forces
  6. Highest and best use
    ...The possible use of a property that would produce the greatest net income and thereby develop the highest value
  7. Substitution
    When 2 properties are identical, the one with the lowest cost will attract the most demand.
  8. Supply and Demand
    High demand/low supply = high cost, low demand/high supply = low cost
  9. Conformity 
    Building homes in a neighborhood similarly to maximize value of all homes in the neighborhood.
  10. Anticipation
    Value can increase or decrease in anticipation of some future benefit or detriment affecting the property.
  11. Contribution
    The value of any component of a property is defined by what its addition contributes to the value of the whole or what its absence detracts from the value.
  12. Competition
    The success of a retail store may motivate investors to open similar stores in the area, creating competition.
  13. Change
    No physical or economic condition remains constant
  14. The Sales Comparison Approach
    An estimate of value is obtained by comparing the subject property with recently sold comparable properties.  Most often used in valuing sing-family homes and land.
  15. 4 factors of the sales comparison approach
    Date of sale, location, physical features, terms and conditions of sale.
  16. Arms-length transaction
    the property did not sell for an unusually high or low price because of a special relationship between the buyer and seller.
  17. When comparing comps to the subject always make changes to the _______ not the _______.
    Comps not the subject property
  18. Comparative Market Analysis (CMA)
    A simplified version of an appraisal performed by a real estate agent who does not need an appraisal license.  NCREC will hold agents accountable for not performing a CMA in a competent manner.
  19. The Cost Approach appraisal
    The process of estimating the value of a property by adding the appraiser's estimate of the reproduction or replacement cost of the building, (minus depreciation) to the estimated land value...
  20. Reproduction cost
    the dollar amount required to construct an exact duplicate of the subject building at current prices
  21. Replacement cost
    the construction cost of a property that is not necessarily an exact duplicate but serves the same purpose or function as the original property.  Most often used in appraising
  22. Square-foot method of determining reproduction and replacement costs
    cost per square foot.  Most common method of cost estimation.
  23. Unit-in-place method of determining reproduction and replacement costs
    cost based on the construction cost per unit of measure.
  24. Quantity-survey method of determining reproduction and replacement costs
    an estimate is made of the quantities of raw materials needed to replace the subject structure
  25. Depreciation
    any condition that adversely affects the value of an improvement to real property.
  26. Physical Deterioration (curable/incurable)
    • Curable - Repairs that are physically possible and economical feasible.
    • Incurable - Repairs that are not economically feasible.
  27. Functional Obsolescence (curable/incurable
    • Curable - features that are no longer desirable can be replace at low cost.
    • Incurable - Undesirable features that cannot be easily remedied.
  28. Economic Obsolescence (incurable only)
    caused by factors outside the subject property.  Ex. proximity to a nuisance, polluting factory.  AKA locational obsolescence.
  29. Age-life Method of determining depreciation
    easiest but least precise way, uses the effective age of a building and its economic life, the period during which it is expected to remain useful for its original intended purpose.  The properties cost is divided by the number of years of its expected economic life.
  30. Straight-line method of depreciation
    When the cost of an asset is depreciated evenly over its useful life.
  31. The cost approach method is most helpful in the appraisal of _____-______ buildings such as schools, churches, and public buildings.
  32. The Income Capitalization Approach to value (GIVEN)
    • aka the Income Approach.
    • Gross Income - Vacancy - Expenses = Net Operating Income (NOI).
    • Cap Rate = NOI/Sales price
    • NOI/Cap Rate = Value
    • Value X Cap Rate = NOI
  33. Capitalization rate
    determined by comparing the relationship of Net Operating Income (NOI) to the sales price of similar properties that have sold in the current market.
  34. When the Cap rate goes Up, the market value of the property goes _____.  Vice Versa

    When one goes up the other goes down
  35. Gross Rent Multiplier (GRM)
    Sales price / Rental income = GRM
  36. Reconciliation
    is the art of analyzing and effectively weighing the findings from the different approaches used.
Card Set:
Chapter 17 Real Property Valuation
2013-11-16 15:42:40
NC Real Estate Exam

Modern Real Estate Practice in NC 8th Edition
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