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A loss of value due to poor original design, outdated design, or changes in building standards, etc.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?