Ch 19 quiz: Appraisal of Property

Values will likely increase because of the new demand for homes.

The values are likely to be lower due to the lack of service.

What is the purpose of an appraisal?

To arrive at a market value of a given property.

What is highest and best use?

When a property is used in the manner it is best suited for.

What is the principle of progression?

When lower valued properties increase in value because of their association to higher valued properties.

A new employer opens up in the area and wants to hire 500 people. What happens to property values?

Values will likely increase because of the new demand for homes.

A large apartment complex collects parking fees, pet fees, and laundry fees. Are these included in gross operating income?

Yes, all fees along with rental income is taken into consideration.

Does it matter if lenders are not offering loans when using the sales comparison approach?

Yes, it does matter; properties may be valued lower.

Do higher property taxes impact home values?

Yes, the properties will be less valuable.When property taxes are too high, the demand for housing in that area will decrease, leading to decreased home values.

What value is used for establishing taxes?

Assessed value

What does clean, clear title mean?

Clear title means the property is free of any encumbrances.The title can be easily transferred.

What does the acronym DUST stand for?

Demand Utility Scarcity Transferability

How often is the square foot method of valuation used?

Seldom because it is the least accurate.The square foot method is a cost approach to valuation that essential lumps the entire structure into one price-per-square foot number.

What is an appraisal?

An opinion by a professional about the value of a property.

Is it necessary to have a lease agreement to determine the occupancy of a commercial property?

No, appraisers can determine whether a property will remain occupied based on average occupancy of similar properties..

A playground is being built in a neighborhood with primarily senior housing. Is this good for property values?

No, because it lacks utility.

According to this principle, it is the future, not the past, which is of prime importance in estimating value...?

Principle of change

Which of the following principles states that the worth of a lesser valued residence tends to be enhanced by association with higher valued residences in the same area...?

Principle of progression

What types of properties are appraised using the income capitalization approach?

Property that is expected to generate income for the owner.

Which method of cost of development is used least?

Quantity survey

What are the three methods for determining the cost of development?

Quantity survey method, unit-in-place method and square foot method

What property expenses are fixed?

Taxes and insurance

What is the principle of substitution?

The ability to acquire another property that is both desirable and similar in a short period of time. This principle states that the value of something is affected by the cost of getting a similar (substitute) item elsewhere.

What is the principle of conformity?

The more unique new homes are, the lower the value.

What value is most commonly used for commercial property?

Value in Use

An office building is valued using the...?

income producing properties are valued using the income approach. These include office buildings.

What is the principle of change?

Changing market conditions such as supply and demand, interest rates, and property conditions.The principle of change holds that it is the future, not the past, which is of prime importance in estimating value. Change is largely the result of cause and effect.

What happens when interest rates increase?

Fewer people are eligible for mortgages and property values decrease.

Is data from recent sales enough to establish value?

No, combining recent sales only gives you an estimate. Recent sales can give you a rough estimate of value; however, adjustments still need to be made to the subject property to arrive at the market value.

Are property improvements always a good idea?

No, there is the possibility of diminishing returns.Not all improvements raise the value of a property beyond what it cost to install the improvement.

How does an appraiser identify properties when using the Sales Comparison Approach?

Public records such as the clerk in the county and MLS services.

Which valuation method is commonly used to value residential properties?

Sales comparison approach

What is the Sales Comparison Approach?

Sales comparison approach means comparing one property against recent sales of properties in a neighborhood

If three homes used for comparison all have different square footage, what does the appraiser do?

The appraiser will get the average square feet and cost per square foot for the new property.

What does utility mean?

The more useful a property, the higher the value.Utility is defined as the ability to give satisfaction and/or excite desire for possession.

What costs are considered in valuations based on the cost approach?

The price of the lot and all costs associated with constructing the property to specifications.

What is the principle of contribution?

The principle of contribution holds that maximum values are achieved when the improvements on a site produce the highest (net) return, commensurate with the investment. (ex. amenities in working condition)

A home is up for sale at $275,000. A new home that is similar can be built for $255,000. What principle applies?

The principle of substitution affirms that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute property, assuming no costly delay is encountered in making the substitution.

What value is used during the reconciliation process?

The sales comparison approach, the cost approach, and the income capitalization approach are all used.valuation reconciliation is the process through which appraisers take values derived through different techniques and/or different people, reviews the different figures to arrive at a final estimate of value. It requires significant judgment and experience on the part of the appraiser.

Does it matter if a sale was forced because of foreclosure or divorce?

Yes, this is considered a "fire sale" and may not be a true reflection of value.