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60 Cards in this Set

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IRV
Income, Cap Rate, Value
Sales price / Gross Income =
Gross Income Multiplier (GIM)
Sales price / Gross Rent =
Gross Rent Multiplier (GRM)
Impartial 3rd person who prepares appraisal
Appraiser (No agency relationship)
Cost at current prices to construct improvements similar but not necessarily an exact duplicate
Replacement Cost
Estimate of value obtained by comparing subject property with recently sold comparable properties
Sales Comparison Approach
Who certifies appraisers?
State Board of Certified Real Estate Appraisers
Better quality property is adversly affected by the presence of a lesser quality property
Pricipal of Regression - ONE OF THE BASIC PRINCIPLES OF VALUE
Rules and Regulations for appraisers
Uniform Standards of Professional Appraisal Practice.
Money spent on improvements produces an increase in value or income
Law of increasing returns - ONE OF THE BASIC PRINCIPLES OF VALUE
Three classes of certifiction for appraisers
1. Certified General Real Estate Appraiser
2. Ceritfied Residential Real Estate Appraiser
3. Broker/Appraiser
Art of analyzing and effectively utilizing findings from the 3 appraisal appraoches
Reconciliation
Deduction for vacancy and rent loss from gross income
EFFECTIVE gross income
Can appraise any residential, non-residential property or federally-related transactions for commercial property values over $1M
Certified GENERAL Real Esate Appraiser
Permitted to appraise only properties valued UNDER $250,000 that are not involved in federally-related transaction.
Broker/Appraiser
County Assessors who pass exam can value property (for ad valoreum) tax purposes. They recieve this certification
Certified Pennsylvania Evaluator (CPE)
Conditions essential to "market value"
Probable price (not avg. or highest); parties are unrelated and acting w/o undue pressure; parties are well informed about use & potential; property is exposed to market; payment made in cash or equivalent; price represents normal consideration
When does licensing law permit a licensee to prepare a CMA
ONLY in conjunction with a listing or sales transaction
Ways to determine reproduction or replacement costs in appraisals
1. Square Foot Method
2. Unit in Place Method
3. Quantity Survey Method
4. Index Method
The Four characteristics of value
Demand
Utility
Scarcity
Transferibility
(DUST)
Need or desire for possession and financial means to satisfy need
Demand
Used as substitute for a more elaborate income capitaliztion
Gross Rent Multiplier (GRM) and gross income multiplier (GIM)
Capacity to satisfy human needs and desires
Utility
Easiest but least precise ways to determine depreciation
STRAIGHT LINE method (economic life method) assumed at an even rate over economic life
A finite supply
Scarcity
Ownership rights are easily transferred
Transferability
Most probable price that a property should bring in a fair sale
Market Value
Appraisal approach based on present value of rights to future Income
Income approach
Loss in value that adversly affects value
Depreciation
Three kinds of (Curable & Incurable) depreciation -
1. Physical Deterioration
2. Functional Obselescense
3. External Depreciation (usually incurable)
Actual selling price
Market Price
Value
Present worth of future benefits
2 Basic classes of data used by appraisers
General data - Specific data
May not equal either market value or market price
Cost
Construction cost at current prices for exact duplicate of subject
Reproduction costs (usually done for historic bldgs)
Value created by the expectations that certain benfits will be realized in the future
Anticipation - A Basic Principal of Value
The cause and effect of social and economic forces constantly causes property values to be in transition
Competition - ONE OF THE BASIC PRINCIPLES OF VALUE
The interaction of supply and demand
Competition - ONE OF THE BASIC PRINCIPLES OF VALUE
Rental Income X GRM =
Estimated Market Value
Cap Rate =
Income / Value
Value is created when components of a property are in harmony with its surroundings
Conformity - ONE OF THE BASIC PRINCIPLES OF VALUE
Value of any component is increased by the amount it contributes to the value of the whole
Contribution - ONE OF THE BASIC PRINCIPLES OF VALUE
The most profitable single use to which the property may be adapted
Highest and Best Use - ONE OF THE BASIC PRINCIPLES OF VALUE
FOUR characteristics of highest and best use
Legally permitted; financially feasible; physically possible; maximally productive
Additional improvements do not produce proportionate increase in income or value
Law of Diminishing returns - ONE OF THE BASIC PRINCIPLES OF VALUE
"Act" of merging two or more lots under one owner
Assemblage
Body established uniform certification procedures for appraiser of "federally-related" transactions (any involving a bank or mortgage)
Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989
Merging adjacent lots into single larger one produces a greater total land value in the principal of:
Plottage - ONE OF THE BASIC PRINCIPLES OF VALUE
All appraisal activities are governed by whom?
Board of Certified Real Estate Appraisers & the Real Estate Certification Act
Value X Rate =
Income
Appraises only residential property, 1-4 units. For federally-related transactions, may appraise properties valued over $250,000
Certified RESIDENTIAL real estate appraiser.
Modest lesser quality home valued higher if located among better properties
Pricipal of Progression - ONE OF THE BASIC PRINCIPLES OF VALUE
Maximum value of a property tends to be set by the cost to purchase an equally desireable substitute property
Substitution - ONE OF THE BASIC PRINCIPLES OF VALUE
Value of property depends on the number of properties available in marketplace
Supply and Demand - ONE OF THE BASIC PRINCIPLES OF VALUE
3 Types of Appraisals
1. Sales Comparison Approach
2. Cost approach
3. Income Capitaliztion Approach
Examples of adjustments made due to dissimilarities in Sales Comparisons
Property rights; financing concessions; conditions of sale; date of sale; location, physical features & ammenities
Appraisal approach based on the principal of substitution
Cost Approach
NOI / Cap Rate =
Value
Effective gross income LESS expenses is -
Annual NET Operating Income (NOI)
The period during which a property is expected to remain useful for its original intended purpose
Economic Life