RE Chapter 7

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  1. An opinion of the value of a specific property, on a given date, to indicate the market conditions influencing the value of the property at a particular point in time
  2. An appraisal is valid for _____
    Only the date it is made
  3. First step of an appraisal
    Define the problem
  4. Final step of an appraisal, done after appraiser has collected all the data and applied different approaches
    Reconcile (correlate) the values found in the different approaches
  5. 2 very important elements in determining the appraised value of a residential property
    • Marketability
    • Acceptability
  6. The property tax value is ______ in determining the appraised value of a home
  7. The ultimate test of functional utility in an appraisal is _______
  8. The date of the inspection of the property by an appraiser
    Date of Value
  9. The date of the final writing or delivery of the appraisal report
    Date of Appraisal
  10. An appraiser is most interested in the date the "________"
    Price was agreed upon
  11. 3 basic styles of written appraisal reports
    • Letter Form Report
    • Form Report
    • Narrative Report
  12. The least formal appraisal report, can consist of a simple letter to the client summarizing the information
    Letter Form Report
  13. Aka Summary Report or Uniform Residential Appraisal Report
    Form Report
  14. An appraisal report in checklist form, with fill-in spaces, used primarily by appraisers for lending institutions
    Form Report
  15. The most commonly used appraisal report
    Form Report
  16. The most comprehensive appraisal report with the most complete analysis, includes all info found by the appraiser as well as the reasoning and computations for the value conclusion
    Narrative Report
  17. Appraisal report that has headings like "Into, Site and Improvement Analysis, Supporting Data, and Opinion of Value"
    Narrative Report
  18. Appraisal reports do not usually include information about _________
    A buyer's financial condition
  19. The "Statement of Purpose" in a narrative appraisal report includes the "_____"
    Type of value being estimated
  20. An appraiser may appraise property for a corporation in which she owns stock if she _______
    Discloses her ownership in the report
  21. This is required to appraise non-residential property valued over $250,000
    Certified General Real Estate Appraiser's License
  22. A ______ is NOT authorized to prepare an appraisal report
    Property inspector
  23. Principles of Valuation (5)
    • Substitution
    • Highest and Best Use
    • Conformity
    • Contribution
    • Regression
  24. Principle of valuation that is used in all appraisal techniques and is the basis of the market data approach, aka comparison or substitution approach
    Principle of Substitution
  25. Principle of valuation that assumes the value of a property is usually determined by the cost of acquiring an equally desirable substitute property, because no prudent person would pay more than others are willing to
    Principle of Substitution
  26. The use of a parcel of land that will produce the greatest net rate of return over a given period of time
    Highest and Best Use
  27. One of the first things an appraiser does, and the primary purpose, when appraising vacant land
    Determines the highest and best use
  28. Principle of valuation that determines the use of the land that will produce the greatest return, often used for vacant land
    Principle of highest and best use
  29. When appraisers use highest and best use principle on a parcel with an existing structure of little value, the appraiser subtracts ______ from the value of the land
    Demolition Cost
  30. When the highest and best use is expected to change, the current use is called the _______
    Interim Use
  31. Principle of valuation that holds that maximum value is found when land uses are compatible and have a reasonable degree of architectural harmony
    Principle of Conformity
  32. Zoning ordinances are often used to help set _____ standards in a neighborhood
  33. Principle of valuation that an appraiser uses when analyzing a component of income property, considering in particular the component's contribution to the net return
    Principle of Contribution
  34. A remodeling and modernization program emphasizes the ________
    Net effect on income
  35. Value, or worth, according to an appraiser is: (3)
    • Relationship between the thing desired and the purchaser
    • Power of one commodity to attract the other commodities 
    • Present worth of future benefits arising from ownership of the property
  36. Value based on the concept of a "willing buyer" and a "willing seller;" the most probable price the property should bring on the open market within a reasonable length of time
    Market Value, or Objective value
  37. Market value is most nearly synonymous with _______
    Market Price
  38. Value as the property is used by the owner, aka subjective value
    Utility Value
  39. Principle of valuation in which the value of a more expensive home is pulled down when lesser quality homes are built nearby
    Principle of Regression
  40. Building a large number of average priced homes in an area which previously had mostly high priced homes tends to _____ values
  41. The current market value of the land and improvements combined
    Improved Value of Land
  42. Market value has very little relationship to ______
    Original cost
  43. When property gains value due to inflation or an increase in population
    Unearned Increment
  44. The greatest stability in value is found when there is a reasonable degree of ______ of style and design in a residential neighborhood
  45. Changes in financing terms will effect price, but not the ______ of a property
  46. Real estate has inherent value when it represents the _______ of available resources
    Maximum utility
  47. Essential Elements of Value (DUST)
    • Demand
    • Utility
    • Scarcity
    • Transferrability
  48. Essential element of value that refers to the desire in the marketplace
  49. Essential element of value that refers to the ability of the property to satisfy a need or desire
  50. Essential element of value that refers to the availability in the marketplace
  51. Essential element of value that says a property must be transferrable as to use or title
  52. NOT essential elements of value (3)
    • Cost
    • Appreciation
    • Expectation
  53. 4 Great forces influencing value
    • Social ideals and standards
    • Economic influences
    • Environmental and physical characteristics
    • Government or political influences
  54. An appraiser would have little concern with the economy when appraising a _______
    Medical building
  55. In commercial properties, merchants like properties with the most _____, which are on the ____ and _____ sides of the street, and on the ______ corner of intersections
    • Exposure
    • South
    • West
    • Southwest
  56. Less desirable sides of the street for merchants (2)
    North and East
  57. The contour of the surface of the land that influences value
  58. Best type of topography for residential property, as far as value
    Limited irregularity, like gentle, rolling hills
  59. Placement of a building on its lot in relation to exposure to sun, prevailing wind, traffic, and privacy from the street; influences value
  60. Factor that influences value that refers to the past expenditures of money to acquire the property
  61. Factor influencing value that equals the value of the improvements when they are new and represent the highest and best use of the property
  62. Factor influencing value that refers to what the buyer actually pays for the property, may be affected by the conditions of sale
    Price/Market Price
  63. Additional factors that influence value of a home (7)
    • Exposure
    • Topography
    • Orientation
    • Cost
    • Price
    • Plottage
    • Effective Age
  64. Factor influencing value that refers to the added increase in value when two or more lots are joined together, above and beyond the value of the individual lots
  65. Factor influencing value that refers to the apparent age of the improvement (because of how it has been maintained or remodeled), as opposed to its actual physical age
    Effective Age
  66. Methods of Estimating Value (4)
    • Market Data Approach
    • Cost Approach
    • Capitalization (Income) Approach
    • Gross Multiplier Approach
  67. Method of estimating value that studies the sales of similar properties in the area to form an opinion of value, based on the principle of substitution and commonly used to appraise residences and vacant land
    Market Data Approach
  68. The oldest, quickest, easiest to learn, and very adaptable method of estimating value
    Market Data Approach
  69. Also known as the Comparison Approach, Comparative Approach, or Substitution Method
    Market Data Approach
  70. The Market Data Approach is also used to appraise _______ properties
  71. The entire property when appraising a single family home under the Market Data Approach
    Unit of Comparison
  72. In the Market Data Approach, when a comparable property has a feature not found in the subject property, the appraiser adjusts the _____ to the characteristics of the ______
    • Comparable property
    • Subject property
  73. In the Market Data Approach, when an appraiser is adjusting for different features in a comparable property and the subject property, he will subtract the _____ from the _____
    • Value of the feature
    • Sale price of the comparable
  74. The most difficult step in the process of the Market Data Approach, according to appraisers
    Adjusting for differences in the features of the comp and the subject property
  75. The market data approach is not very effective in a ______ market, or in times of ____ economic conditions
    • Slow-moving/inactive
    • Rapidly changing
  76. When a residential neighborhood is comprised of mostly owner-occupied residential properties, it tends to _______ values
  77. Increasing the population density and home sale turnover rate tends to ____ a residential neighborhood
  78. Method of estimating value that is used when other approaches are not appropriate, such as specific purpose buildings or new subdivision homes
    Cost Approach
  79. Method of estimating value that is the least appropriate for appraising older buildings, because depreciation becomes difficult to calculate as the building gets older
    Cost Approach
  80. Method of estimating value that usually sets an upper limit on value, and is also called the Replacement Approach
    Cost Approach
  81. 4 Steps of the Cost Approach
    • 1) Estimate value of land
    • 2) Estimate replacement costs of improvements
    • 3) Subtract accrued depreciation from replacement cost
    • 4) Add the value of the land to the depreciated value of the improvements
  82. Method of estimating value that converts income into value in one step, and is not usually used because it is not as accurate as others
    Gross Multiplier
  83. Also known as the Rent Multiplier or Gross Rent Multiplier Method
    Gross Multiplier Method
  84. The Gross Multiplier Method uses a formula in which appraisers divide the _____ by their ____
    • Sale price of comps
    • Gross monthly or gross annual income
  85. A separate site analysis is _____ important when appraising with the gross multiplier method
  86. An acre is ______ feet, _____ sq yards, and about ____ by ___ feet, if square
    • 43,560
    • 4840
    • 209 x 209
  87. Discloses the location of earthquake fault lines on maps for all counties in CA
    Alquist-Priolo Act
  88. Dirt used to fill excavations or brace foundations
  89. A wall supporting any vertical load in addition to its own weight, normally left in place during remodeling, and considered real property
    Bearing Wall
  90. _____ can be constructed at any angle to doorways
    Bearing Walls
  91. A monument used by a surveyor to establish the elevation at a particular point on land
    Bench Mark
  92. A unit of measurement of lumber that is one foot wide, one foot long, one inch thick, and any combination of 144 cubic inches
    Board Foot
  93. A measurement of heat used in rating the capacity of heating systems
    BTU (British Thermal Unit)
  94. 43,560 sq ft minus the space taken by streets, alleys, sidewalks, parkways, etc.
    Commercia Acre / Buildable Acre
  95. Compressing fill dirt to bear the weight of a building
  96. If a building's foundation is cracked, and the doors and windows do not close properly, a report on the ______ is obtained from a registered civil engineer
    Soil stability
  97. A metal pipe in which electrical wiring is installed, done by an electrician in a construction project
  98. Under the Contractor's State License Law, every person who performs the work of a contractor must be licensed by the _____
    Contractor's State License Board
  99. Exemptions to the Contractor's License (2)
    • Minor work under $500
    • Owner's own work (unless he intends to sell it within a year)
  100. Repairing broken equipment in an income producing property
    Corrective Maintenance
  101. _____ is not usually considered a dangerous gas
    Carbon Dioxide
  102. Plants that lose their leaves in the autumn and winter, NOT a type of soil
  103. Drywall construction uses gypsum, fiberboard, and plywood, but not _____
  104. Drawings which show the front and side views of homes in a subdivision as they will appear when finished
    Elevation Sheet
  105. Measures the efficiency of appliances, such as A/C
    Energy Efficiency Ratio
  106. The higher the Energy Efficiency Ratio, the ____ the unit
    More efficient
  107. Sheet metal used to protect a building from seepage of water, like the valley of a roof
  108. The spreading concrete base or bottom of a foundation wall, whose size and dimensions relate to the foundation of the building
  109. Shows the location, size and dimensions of the footings, concrete piers and details of the subfloor area
    Foundation Plan
  110. Measurement of property on its street line; used for sale or valuation purposes
    Front Footage
  111. A roof which sloes or inclines on all four sides
    Hip Roof
  112. Refers to the Heating, Ventilating, Air Conditioning system in a commercial lease
  113. The "R" value rating measures insulation's _____, and must be disclosed to the buyer of a home in _____
    • Resistance to heat
    • A new subdivision
  114. The higher the R value, the _______
    Greater the insulation
  115. Wall insulation is adequate if the inside of an exterior wall is __________ as other interior walls
    About the same temperature as
  116. One of a series of parallel beams used to support the ceiling and floors; a parallel
  117. Old electrical wiring does not necessarily make a home _____, as long as it was installed properly and met code requirements _____
    • Substandard
    • At the time it was built
  118. Underground water which does not flow in a defined channel, and seeps through soil
    Percolating Water
  119. A soil analysis that determines how quickly water will seep through soil (such as for sewage purposes), would be done before a septic tank is installed
    Percolation Test
  120. Map that shows the location of improvements on a lot
    Plot Plan, or Plot Map
  121. Water which is suitable for drinking
    Potable Water
  122. The highest structural point in a frame house
  123. The distance a building must be set back from the street or the side and back boundary lines, affecting the dimensions for building purposes only
  124. The distance a building must be set back from the side line of the lot
    Side Yard Setback
  125. The lowest part of a frame house that rests on the foundation
    Sill (Mudsill)
  126. A board on which walls and partition studs rest
  127. A single line of store buildings constructed along a major transportation route
    Strip Commercial Development
  128. A termite report is filed with the ______ where copies are kept for ______, and a copy must be given to _____
    • Structural Pest Control Board
    • 2 years
    • Both buyer and seller
  129. The Structural Pest Control Board will issue reports showing the presence of "______"
    Wood destroying organisms
  130. The most destructive kind of termites
  131. Report that should be requested from the Environmental Protection Agency if a property is next to an abandoned gas station
    Toxic Waste Report
  132. A project that is ready for occupancy, and indicates that a tenant can move in immediately
    Turnkey Project
  133. The depth at which water is found
    Water Table
  134. In the Cost Approach, it is most important to have a separate appraisal of the _____ and _____
    • Land
    • Improvements
  135. Units of comparison for land in the Cost Approach (3)
    • Frontage
    • Front Foot Value
    • Cost Per Square Foot/Cost Per Acre
  136. The most common unit of comparison for appraising land
    Cost per square foot/cost per acre
  137. The deeper the lot, the ___ the front foot value
  138. The distance in which a property adjoins a street or thoroughfare
  139. 4 methods appraisers use in the Cost Approach to estimate replacement costs of improvements
    • Square Foot method
    • Cubic Foot method
    • Quantity Survey Method
    • Unit-in-Place Cost Method
  140. Method of estimating replacement costs in which appraisers use exterior dimensions and compare the cost to build a similar quality improvement
    Square Foot method
  141. Method of estimating replacement costs used in multistory structures when the height between floors varies, like in a warehouse
    Cubic Foot method
  142. Both square foot and cubic foot are ______ methods of estimating replacement cost, which is considered the easiest method
  143. Method of estimating replacement cost in which an estimate of all labor and materials is compiled for each component of the building; the most detailed and accurate method of estimating the cost of new improvements
    Quantity Survey Method
  144. Method of estimating replacement cost in which the cost of individual units are added as they are installed; a time consuming and seldom used method
    Unit-in-place Cost Method
  145. The cost to build a comparable structure
    Replacement Cost
  146. The cost to build an exact duplicate of a structure
    Reproduction Cost
  147. The reproduction cost is usually ______ than the replacement cost
  148. Loss in value from any cause, accrues over time
  149. Type of depreciation that is most difficult to measure accurately
    Accrued Depreciation
  150. Causes of depreciation (2)
    • Obsolescence
    • Physical Deterioration
  151. Obsolescence that is caused by external events (those occurring outside of property lines), and is the most difficult to correct
    External Obsolescence, or Economic Obsolescence
  152. Examples of External Obsolescence (8)
    • Nonconforming improvements near the property
    • Governmental restrictions (taxes, zoning, etc.)
    • Social or economic changes
    • Poor sewer system in the area
    • Changes in supply and demand
    • Airport noise
    • Oversupply of like properties in the neighborhood
    • Nearby nuisances (odors, noise, etc.)
  153. Obsolescence caused by events occurring within the property lines and observable during an inspection by an appraiser
    Internal/Functional Obsolescence
  154. Examples of Examples of internal/functional obsolescence (3)
    • Poor design of housing (one house worth much less than the one next to it, or having a one-car garage)
    • Outdated facilities
    • Changes in construction styles
  155. Cause of depreciation that is caused by events occurring within the property lines such as wear and tear and deferred maintenance
    Physical Deterioration
  156. The MAJOR cause of depreciation
  157. Depreciation that is economically and physically possible to correct
    Curable Depreciation
  158. Depreciation that is either too expensive or physically impossible to correct
    Incurable depreciation
  159. The period of time in which an income property generates income in excess of its expenses, and justifies the existence of the building
    Economic Life
  160. The _____ life of a building is usually shorter than the _____ life, hence more buildings are ______ down than _____ down
    • Economic
    • Physical
    • Torn
    • Fall
  161. Method of estimating value that establishes the present worth of future benefits which may be obtained from an income-producing property
    Capitalization (Income) Approach
  162. The Capitalization Approach determines the value of an asset by dividing the ______ by a desired _____
    • Annual net income
    • Rate of return, called a cap rate
  163. A mathematical process used to convert income into value
  164. Steps to determining value under the Capitalization Approach
    • Determine annual net income
    • Select the appropriate cap rate
    • Divide the annual net income by the cap rate to find value of property
  165. Three methods of calculating Cap Rate
    • Market Comparison
    • Band of Investment
    • Summation
  166. Annual Net Income, or Net Operating Income, used to determine value in the Capitalization Approach, is determine by these formula steps: (3)
    • Estimate Potential Gross Income 
    • Subtract vacancies to find Effective Gross Income
    • Subtract expenses to find Annual Net Income
  167. Other terms for _____ include Market Rent, Economic Rent, & Scheduled Gross Income
    Potential Gross Income
  168. The rent that a property would bring in the open market at the date of an appraisal; the rent received for a comparable space in the current economy
    Potential Gross Income
  169. Expenses that must be subtracted from gross income in the Capitalization Approach (TIMMUR)
    • Property Taxes
    • Insurance
    • Management
    • Maintenance
    • Utilities
    • Reserves for replacements
  170. 3 things that are NOT considered in establishing annual net income in the Capitalization Approach
    • Loan expenses
    • Personal income taxes
    • Depreciation
  171. The largest fixed operating expense of an income property
    Property tax
  172. Rental schedules are usually established by ______
    Market Comparison
  173. The rate of return demanded by an investor before he will part with his money
    Capitalization Rate
  174. The foundation of all cap rates is set by _______ (banks, bonds, etc.)
    Conservative interest rates
  175. In determining a capitalization rate, the greater the risk, the _________ the capitalization rate demanded by investors (for example, leasing a post office has little risk of vacancy and results in a _____ capitalization rate)
    • Higher
    • Lower
  176. Capitalization rates consider the ______ of the rent (3)
    • Quantity
    • Quality
    • Durability
  177. When interest rates increase, capitalization rates ______
  178. If capitalization rates increase, the value of the property ________
  179. If net income remains unchanged, but interest rates increase, the owner's equity ______
  180. The capitalization rate includes a "_______" and a "________"
    • Return on the investment (interest)
    • Return OF the investment (depreciation of improvements)
  181. Cap rates do not include ______ taxes
  182. When the annual net income of an income property decreases and the cap rate demanded by investors remains unchanged, the value of the property _________
    Goes down
Card Set
RE Chapter 7
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