Real Estate: Property Valuation
Credit Laws
-Consumer Credit Protection Act -Fair Credit Reporting Act -Fair Credit Billing Act -Equal Credit Opportunity Act -Fair Debt Collection Practices Act
non-licensee
A ____________ may not communicate with the public in a manner which is used, designed or structured for solicitation purposes with respect to a specific property, transaction or product.
Broker Price Opinion (BPO)
A broker's written opinion of the value of a particular property that may not be used in connection with the originating a federally related loan; not an appraisal.
Comparative Market Analysis (CMA)
A comparison of the prices of recently sold homes that are similar to a listing seller's home in terms of location, style, and amenities.
Transfer Disclosure Statement
A form that notifies buyers of any physical defects to a property and requires the seller and the agent to list any evidence of defects of which they are aware
Baloon Mortgage
A large payment, which often occurs at the end of the loan or at an agreed-to time period that pays off the loan.
Fair Debt Collection Practices Act
A law that protects consumers from abusive practices by creditors and collection agencies
Economic Obsolescence
A loss in value due to external factors that have a negative effect on the value of a property. Incurable depreciation.
Functional Obsolescence
A loss of value due to poor original design, outdated design, or changes in building standards, etc. Curable depreciation.
Lis Pendens
A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court.
Consumer Credit Protection Act
Act that limits the amount of wages that can be garnished or withheld in any one week by an employer to satisfy creditors.
Fair Credit Reporting Act
Act that protects privacy of background information and ensures that information supplied is accurate.
Contribution
Additional investment in a piece of property.
toxic waste report
An appraiser is appraising a single family residence and notices an abandoned convenience store that has gas pumps. What report would the appraiser most likely recommend?
Truth in Advertising
An ethical duty to be honest to customers about the product or services being offered.
Plottage Value
An increase in value associated with assemblage (the combination of multiple small pieces of land into one large parcel).
Deed of Trust
An instrument that grants a trustee under a land trust full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.
Capital Expenditures
Any money spent to improve the property, not to maintain it.
Substitution
Buyers will not pay more for something than they have to pay for a comparable good.
Cost to Cure Method
Calculates the depreciation costs based on how much it will cost to repair any CURABLE DEPRECIATION (what can be fixed by owner) on property, plus any loss associated with INCURABLE DEPRECIATION.
Physical Deterioration
Cost associated with aging, physical wear and tear, and deferred maintenance. This is curable depreciation.
Accrued Depreciation
Depreciation that has already occurred at the time of purchase. Remainder depreciation is AFTER purchase.
licensee
During the holding of an open house, only a ___________ may show or exhibit the property, discuss terms and conditions of a possible sale, discuss other features of the property, such as its location, neighborhood or schools, or engage in any other conduct which is used, designed or structured for solicitation purposes with respect to the property.
Investment Value (Income Approach)
Estimating the value of a rental property based on the annual income it brings in.
Social, Economic, political and physical forces
Forces and Factors that influence Value
FHA (Federal Housing Administration)
Gave loans required less down payment on a house or lower interest rate under the new deal
Deeds of Trust
Given by the debtor to a third party trustee who holds the deed of trust until the loan is paid in full. If the loan is not paid the trustee can EITHER obtain a court order for a foreclosure sale of the property OR sell the property at public auction.
Equal Credit Opportunity Act
Gives all applicants the same rights. Credit providers may not discriminate based on: Age, Social Security, Housing loans.
sales price divided by gross monthly rental
How is a gross rent multiplier determined?
Gross Rent Multiplier (GRM)
How many months of gross rent it would take for a property to pay for itself. Sales Price/Gross Rent = GRM
Value
How much a ready, willing, and able buyer will pay for something, and a willing and informed seller will accept.
Environment and Physical Barriers
Location. Proximity to transportation, natural recourses, climate, etc.
loan originator
One who is responsible for working with a prospective borrower to gather information, assist with completing applications, and otherwise making or initiating a new loan.
Eonomic Barriers
People's ability to buy homes. Impacted by employment, inflation, interest rates, etc.
Social Trend Barriers
People's wants and desires. Impacted by demographic trends, family sizes, environment preferences, crime rates, etc.
Capitalization Rate (CAP Rate)
Percentage of a property's value an investor can expect to receive as net operating income (NOI) every year. NOI/Sales Price = CAP rate
Competition
Profits attract competition. Competition increases supply, which drives down price.
Four Stage Lifestyle
Properties go through four stages: growth, stability, decline, and revitalization.
probable
Real Estate broker's conducts a CMA to find a ____ sales price
Change
Real estate values are cyclical, and change over time in response to the general economic climate, interest rates, inflation, employment, etc.
Transferability (D.U.S.T)
Sellable real estate must be free from clouds on title (issues with ownership). Real estate with title defects is difficult to sell, thus has lower value.
Utility (D.U.S.T)
Something's usefulness. The more useful it is, the more valuable it is.
Increasing and Decreasing Returns
Spending money to improve a property may not add value. Spending too much is over-improvement, and spending too little is under-improvement.
Gross Living Area (GLA)
Square footage based on all furnished, heated, above ground parts of property.
a portion of the fees paid by licensees
The California Real Estate Recovery Account is funded from
FHA
The Federal Housing Administration gave both the construction industry and homeowners a boost by insuring bank loans for building new houses and repairing old ones
Market Price
The actual amount paid in the market
net profit
The amount left after operating expenses are subtracted from the gross profit
Anticipation
The benefit a property owner expects to receive over their lifetime of ownership.
loan brokerage
The business of originating mortgages for lenders or selling existing mortgages to investors.
Unlicensed Sales Assistants
The canvassing by __________ may only be used to develop general information about the interest of the person answering and may NOT be used, designed or structured for solicitation purposes with respect to a specific property, transaction or product.
Expenses
The cost of assets consumed or services used in the process of generating revenues.
Operating Expenses
The costs it takes to run a property. Maintenance, insurance, property taxes, etc.
Liquidation Value
The foreclosure value of a property.
Fannie Mae and Freddie Mac
The government-sponsored enterprise responsible for guaranteeing and funding home mortgages
Conformity
The idea that maximum value is achieved when a property is more or less in line with the surrounding properties.
Highest and Best Use
The idea that properties will be optimized to their most optimal use over time.
Progression/Regression
The increase (appreciation) or decrease (depreciation) in your property value based on substitution.
Supply (D.U.S.T)
The more plentiful something is, the less it is worth (and vice versa).
type of financing that is currently available in the market
The narrative appraisal report of a single family home would not have any references to:
Balance
The notion that value is increased and maintained when there is equilibrium among the amount and location of types of real estate.
Demand (D.U.S.T)
The number of people who want to buy the property (and are able to do so).
Economic Obsolescence
The phrase "more buildings are torn down than fall down" helps us understand and identify what type of depreciation?
Economic Rent
The rent that is received for comparable space on the open market
Cash on Cash Return on Investment (CoCROI)
The return on an investor's cash investment on the property, rather than property's total value. Cash Flow/Dollars invested = CoCROI
Assessed Value
The taxed value of a property.
Cost
The total cost to build a property.
Insurable Value
The value of a property for insurance. The Comprehensive Loss Underwriting Exchange (CLUE) records past consumer claims that are used in homeowner's insurance underwriting.
Investment Value
The value of property for investors.
Value-in-Use
The value to a particular user of a property.
Market Value
Theoretical price a ready, willing, and able buyer would pay, and a willing, informed seller would accept in an arms-length transaction (sale with no collusion between buyer and seller. aka fair market value).
The California Real Estate Recovery Account
This enables a person who has been defrauded or had trust funds converted by a real estate licensee in a transaction requiring that license to recover at least some of his or her actual loss when the licensee has insufficient personal assets to pay for that loss.
The Cost Approach
Uses construction costs to determine property value. Used for buildings that lack sales data because they are unique (e.g. churches) or they are brand new.
Market conditions affecting the value of that property at that single point in time
What does "on a given date" refer to on an appraisal for an income producing property?
Obsolescence
What is the major cause of loss of value when we are referring to real property?
Economic Obsolescence
What is the most challenging type of depreciation to remedy?
Adjusting data, either adding or subtracting for differences with comparable and subject properties
What is the most important and often one of the most challenging tasks when using the market data method of appraising?
Government and Legal Barriers
What you can legally do with the land. Impacted by zoning, building codes, environmental laws.
the assessed property value
When appraising improved real property, which is least important?
Applying the gross rent multipliers
When appraising real property, an appraiser takes a separate valuation for the site/land. What is least important?
Consistent-Use
When improved land is in a state of transition to another highest and best use, it cannot be appraised with one use for the land and another use for improvements.
Residences in new subdivision
When would you NOT use the income approach when appraising property?
Sales Comparison Approach
Where an appraiser looks at recent comparable sales ("comps") and determines the value of a property based on those sales. It is most useful for midlife residential properties and land sales. Comparable properties must be in the same area and sold within the last six months.
utility, transferability, scarcity, demand
Which is the best group of characteristics to assess the value of a parcel of real property?
An over supply of comparable homes available
Which of the following would be an example of Economic Obsolescence?
Title Insurance
a type of insurance that protects the buyer if problems with the title are found later
FHA loans are available:
for owner-occupied homes
ARM mortgage
interest rate is periodically adjusted
Market Cost
price at which an item was purchased
USDA loans are available for
primary residence only
USDA loans are primarily for properties located in
rural areas
Escrow
the depositing of money, legal documents, and instructions with a third party to be held until the conditions of a contract are fulfilled
Net Income
the difference between total revenue and total expenses when total revenue is greater
Gross Profit
the excess of net sales over the cost of goods sold
Escrow Agent
the neutral third party who conducts the closing in real property sales
Cost of Goods Sold
the total cost of merchandise sold during the period
converting value into income
what is capitalization?