Valuation And Appraisal

Front 1

Appraisal

Back 1

act or process of developing an opinion of value.

Front 2

Value

Back 2

present worth of rights to future benefits that come from property ownership

Front 3

Appraisal Report

Back 3

opinion of value in a written statement given by appraiser

Front 4

Purpose of the Appraisal

Back 4

helps define how the appraisal process will be laid out

Front 5

Intended Use

Back 5

helps decide which report type is most appropriate for communicating the results of the process

Front 6

Value (worth)

Back 6

present and future anticipated enjoyment or profit from the ownership of property. It is the relationship between the thing desired and the purchaser. It is also the power of one commodity to attract other commodities in exchange.

Front 7

Cost

Back 7

represents expense in money, labor, material, or sacrifices in acquiring or producing something

Front 8

Market price

Back 8

actual sales price of the property, whereas the price for which the property should sell is its market value

Front 9

Market value (fair market value)

Back 9

rice a property would bring if freely offered on the open market, with both a willing buyer and willing seller

Front 10

Objective value

Back 10

Market value determined by actual data

Front 11

Value in use (utility value)

Back 11

usefulness of the property to a specific user

Front 12

Amenities

Back 12

features that add value to a property

Front 13

Subjective value

Back 13

due to the subjective nature of the user’s preference regarding amenities, value could actually decrease

Front 14

Demand

Back 14

desire to buy or obtain a commodity

Front 15

Effective demand

Back 15

desire coupled with purchasing power

Front 16

Utility

Back 16

ability of a property to satisfy a need or desire, such as shelter, income, or amenities

Front 17

Functional utility

Back 17

ability of a property to be useful and perform the function for which it is intended according to current market tastes and standards

Front 18

Scarcity

Back 18

availability of a commodity in the marketplace

Front 19

Transferability

Back 19

title to the property is unclouded and marketable

Front 20

Physical characteristics

Back 20

includes quality of conveniences; availability of schools, shopping, public transportation, churches; and similarity of land use

Front 21

Environmental forces

Back 21

may be climate, soil, topography, oceans, and mountains

Front 22

Location (situs)

Back 22

may be the most important factor influencing value, as far as highest and best use

Front 23

Size

Back 23

use of a property may be determined by the width and depth of the land

Front 24

Depth table

Back 24

used to estimate the value of commercial properties

Front 25

Corner influence

Back 25

Commercial properties benefit from more exposure, while residential parcels may lose privacy and incur higher maintenance costs from increased frontage

Front 26

Thoroughfare condition

Back 26

Width of streets, traffic congestion, and condition of pavement affect the value of properties fronting on those streets

Front 27

Front foot

Back 27

width of a property along a street

Front 28

Exposure

Back 28

south and west sides of business streets are usually preferred by shopkeepers because customers will seek the shady side of the street and window displays will not be damaged by the sun. The north and east sides are less desirable

Front 29

Orientation

Back 29

placement of a building on its lot in relation to exposure to sun, prevailing wind, traffic, and privacy from the street

Front 30

Plottage increment

Back 30

value of the parcels will be increased through assemblage

Front 31

Assemblage

Back 31

putting several smaller, less-valuable parcels together, under one ownership

Front 32

Shape

Back 32

regular-shaped lots are more difficult and expensive to develop.

Front 33

Topography and soil

Back 33

Construction costs will be affected by the terrain and soil condition. Limited irregularity in the contour is best for residential propert y

Front 34

Blighted area

Back 34

refers to a section of a city, generally the inner city, where most of the buildings are run-down and the property values are extremely low

Front 35

Inflation

Back 35

unearned increment that affects property values

Front 36

Unearned increment

Back 36

increase in real estate value that comes about from forces outside the control of the owner, such as a favorable shift in population

Front 37

Business climate

Back 37

presence of shopping areas, offices and medical suites as well as financial, wholesale, industrial, and other consumer-friendly businesses is important to establishing value

Front 38

Obsolescence

Back 38

may be caused by external or economic changes and decreases the usefulness of property or causes deterioration

Front 39

Directional growth

Back 39

determined by how the area or city expands. Property in a growth area tends to increase in value

Front 40

Utility

Back 40

property’s ability to be used for the purpose it was intended fulfills its utility. Building restrictions and zoning ordinances affect utility

Front 41

Building restrictions and zones

Back 41

may increase or depress values

Front 42

Demography

Back 42

study of population

Front 43

Valuation

Back 43

process of estimating market value for real property as of a specific time

Front 44

Neighborhood cycle

Back 44

Four distinct changes all neighborhoods go through: (1) growth (development), (2) maturity (stability), (3) old age (decline), and (4) revitalization (renaissance)

Front 45

Principle of supply and demand

Back 45

first step in how market prices are determined

Front 46

Supply

Back 46

total amount of a given type of property for sale or lease, at various prices, at any given point in time

Front 47

Demand

Back 47

desire and ability to acquire goods and services through purchase or lease

Front 48

Buyer's market

Back 48

created because there is more supply than demand.

Front 49

Seller's market

Back 49

more demand than supply. The less there is of something, the higher the cost; the more there is, the lower the cost

Front 50

Competition

Back 50

Buyers compete with each other to purchase properties. Sellers compete with each other to attract buyers to their properties

Front 51

Principle of substitution

Back 51

value is set by the cost of getting an equally desirable substitute

Front 52

Principle of conformity

Back 52

the more that structures are in harmony with one another, the more valuable each of those structures. A home’s maximum value is realized when surrounding land uses are compatible and nearby homes are similar in design and size. This similarity is called conformity, and it upholds neighborhood values

Front 53

Principle of highest and best use

Back 53

the reasonable use of real property at the time of the appraisal, which is most likely to produce the greatest net return to the land and/or the building over a given period of time. The four tests to determine the HBU of a property are: (1) physically possible, (2) legally permitted, (3) economically feasible, and (4) maximally productive

Front 54

Interim use

Back 54

short-term and tempo-rary use of a property until it is ready for a more productive highest and best use

Front 55

Principle of progression

Back 55

value of an inferior property will be worth more because of the presence of greater-valued properties nearby

Front 56

Principle of regression

Back 56

valueof a superior property will be worth less because of the presence of lower-valued properties nearby

Front 57

Principle of balance

Back 57

real estate value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium. A careful mix of varying land use creates value. Over-improvement or under-improvement will cause imbalance

Front 58

Principle of anticipation

Back 58

value is created by the expectation of future benefits. An appraiser estimates the present worth of future benefits when he or she assigns a value based on anticipated returns

Front 59

Principle of contribution

Back 59

worth of an improvement as well as whatit adds to the entire property’s market value, regardless of the actual cost of the improvement

Front 60

Improvement

Back 60

valuable addition made to property to enhance value or extend useful remaining life

Front 61

Appraisal process

Back 61

Orderly systematic method to arrive at an estimate of value; state the problem, gather the data needed and sources, use the appraisal approaches to estimate value, reconcile estimated values for final value estimate, write the appraisal report

Front 62

General data

Back 62

information about the area where the property is located that affects the value of the property

Front 63

Regional data

Back 63

information about the region’s economic health and amenities. Regional data can be gathered from monthly bank summaries, regional planning commissions, and government agencies

Front 64

Community data

Back 64

can be obtained from the Chamber of Commerce, City Planning Commission, city government agencies, banks, and real estate boards. As with the regional data, community data should be searched for information about the community’s economic health and amenities

Front 65

Neighborhood data

Back 65

concerning the neighborhood’s condition and amenities can be obtained from personal inspections, real estate agents, or area builders. The appraiser notices the age and appearance of the neighborhood; any negative influences, such as physical or social hazards (rundown buildings, evidence of criminal activity); evidence of future development; and proximity to schools, businesses, recreation, and transportation

Front 66

Market data

Back 66

sales and listing prices of property in the neighborhood

Front 67

Specific data

Back 67

information that has to do with the specific location being appraised. Appraisers rely on available market information, such as listings, offers, leases, and sales reports as the foundation of their appraisal methods

Front 68

T-intersection lot

Back 68

fronted head-on by a street. The noise and glare from headlights may detract from this type of lot

Front 69

Interior lot

Back 69

surrounded by other lots, with frontage on the street. It is the most common type lot and may be desirable or not, depending on other factors

Front 70

Flag lot

Back 70

looks like a flag on a pole. The pole represents the access to the site, which is usually located to the rear of another lot fronting a main street

Front 71

Key lot

Back 71

resembles a key fitting into a lock, is surrounded by the backyards of other lots. It is the least desirable because of the lack of pr ivacy

Front 72

Legal data

Back 72

including the legal description, any taxes, the zoning, general plan, and any restrictions or easements. Additionally, the appraiser needs to determine if there are any other interests in the property

Front 73

On-site improvements

Back 73

structures permanently attached to the land, such as buildings, swimming pools, and fences

Front 74

Off-site improvements

Back 74

items in areas that border the site and add to its value, such as street lights, sidewalks, greenbelts, and curbs

Front 75

Reconciliation

Back 75

examine the values derived by the various approaches

Front 76

Appraisal Report

Back 76

includes the identity of the client and any intended users (by name or type), the intended use of the appraisal, the real estate involved, the real property interest appraised, the purpose of the appraisal, and dates of the appraisal and of the report. It also describes work used to develop the appraisal, the assumptions, and limiting conditions, the information that was analyzed, the procedures followed, and the reasoning that supports the conclusions. The report states the current use of the real estate and the use reflected in the appraisal, the support for an appraiser’s opinion of the highest and best use, and any departures from the Standards. It also includes a signed certification

Front 77

Restricted Appraisal Report

Back 77

briefest presentation of an appraisal and contains the least detail. It covers the same categories as the Appraisal Report with a few differences. In this type of report, only the client is named because there are no other users and the use of the report is limited to the client

Front 78

Sales comparison approach

Back 78

uses the principle of substitution to compare similar properties; best for single-family homes or condominiums and vacant lots because sales information is readily available and easily compared

Front 79

Comps

Back 79

comparable properties

Front 80

Comparables

Back 80

properties that are similar to a subject property and are used in the appraisal process

Front 81

Arm's length transaction

Back 81

sale conditions

Front 82

Cost approach

Back 82

looks at the value of the appraised parcel as the combination of two elements. These elements are: (1) the value of the land as if vacant, and (2) the cost to rebuild the appraised building as new on the date of valuation, less the accrued depreciation

Front 83

Replacement cost

Back 83

cost of restoring a property to its previous condition or replacing it with something of like kind and quality

Front 84

Reproduction cost

Back 84

cost of replacing the improvement with one that is the exact replica, having the same quality of workmanship, design, and layout

Front 85

Square-foot method

Back 85

size of the building in question is compared, by square foot, to other buildings with the same area. The building being appraised is compared with the most comparable standard building, and its cost per square foot is used for the subject property

Front 86

Cubic-foot method

Back 86

takes height as well as area into consideration. The cubic contents of buildings are compared instead of just the square footage

Front 87

Depreciation

Back 87

loss in value from any cause

Front 88

Appreciation

Back 88

increase in value

Front 89

Curable depreciation

Back 89

loss in value that is economically feasible to correct

Front 90

Incurable depreciation

Back 90

refers to items of depreciation that either are physically impossible to cure or are too expensive to be worth curing

Front 91

Straight-line method

Back 91

appraiser assumes a building will decline in value the same amount each year, until nothing is left

Front 92

Actual age

Back 92

real age of a building

Front 93

Effective age

Back 93

determined by the condition and usefulness of a building

Front 94

Economic life

Back 94

estimated period over which a building may be profitably used; usually shorter than actual life

Front 95

Cost Basis

Back 95

mathematical calculation of steady depreciation or loss, from the owner’s original purchase price

Front 96

Book value

Back 96

current value (for accounting purposes) of a property, calculated as the original cost plus capital improvements and minus accumulated or accrued depreciation of the improvement.

Front 97

Income approach (income-capitalization approach)

Back 97

estimates the present worth of future benefits from ownership of a property. The value of the property is based on its capacity to continue producing an income

Front 98

Contract rent

Back 98

amount actually paid by a renter for use of the premises

Front 99

Economic rent

Back 99

amount rental could bring in an open market

Front 100

Capitalization

Back 100

converts the future income stream into an indication of the property’s present worth. Risk determines the capitalization rate to be used. The higher the perceived risk, the higher the capitalization rate

Front 101

Effective gross income

Back 101

total annual income from the property minus any vacancy or rental losses

Front 102

Vacancy factor

Back 102

Loss of income because of a vacant unit

Front 103

Vacancy rate

Back 103

number of vacant units expressed as a percentage

Front 104

Market rent

Back 104

rent the property should bring in the open market

Front 105

Fixed expenses

Back 105

include property taxes, insurance, and utilities

Front 106

Variable expenses

Back 106

include management and maintenance

Front 107

Operating expenses

Back 107

Mnemonic = TIMMUR

Taxes Insurance Management Maintenance Utilities Reserves

Front 108

Net operating income

Back 108

income after paying all expenses including a maintenance reserve

Front 109

Debt service

Back 109

principal and interest paid on a loan

Front 110

Capitalization rate (internal rate of return)

Back 110

provides for the return of invested capital plus a return on the investment. The rate is dependent upon the return a buyer will demand before investing money in the property

Front 111

Gross rent multiplier

Back 111

covert gross rent into market value;

Front 112

Gross rent

Back 112

income eceived before any expenses are deducted. A gross rent multiplier, when multiplied by the total annual rents, will give a rough estimate of a property value that can then be compared with other like properties. (x5-10)

Front 113

Appraiser qualifications board

Back 113

establishes the minimum education, experience, and examination requirements an individual must meet in order to become a licensed or certified appraiser.

Front 114

Appraisals standards board

Back 114

develops, interprets, and amends the Uniform Standards of Professional Appraisal Practice

Front 115

Appraisal practices board

Back 115

will identify and issue opinions on Recognized Valuation Methods and Techniques, which may apply to all disciplines within the appraisal profession

Front 116

Bureau of Real Estate Appraisers

Back 116

licenses appraisers in CA

Front 117

Appraisal management company

Back 117

any entity that satisfies all of the following conditions:

1.maintains an approved list containing 11 or more licensed or certified appraisers who are independent contractor or employs 11 or more licensed or certified appraisers who are employees;

2.receives requests for appraisals from one or more clients; and

3.for a fee, delegates appraisal assignments for completion by its independent contractor or employee appraisers