Section 5 -

Yield Capitalization

Analyzes cash flows for multiple future years

AMCs that are found to be in violation of licensing requirements can be fined up to _______ per violation.

$10,000

Which economic principle says that value is created and maintained when the characteristics of a property fit in with its surroundings?

Conformity

Direct Capitalization

Converts a single year's expected income (or an annual average) into a market value

The Appraisal Foundation

national organization comprised of representatives of major appraisal organizations and those of related industries

Curable Depreciation

refers to an item that can be repaired or replaced, and where the cost to cure the item is less than or the same as the anticipated increase in the property's value after the item is cured

Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)

requires that federally related appraisals be conducted by a state-licensed or certified appraiser.

Appraisal management companies are required to _______ the work of all appraisers.

review

unique properties

such as highly energy-efficient houses, residential acreage with excess land, historic houses, and high-dollar houses with many amenities

Reproduction Cost

the cost to build a new building that is exactly like an existing building in every physical detail

federally related transaction:

transactions for sale, lease, purchase, investment, refinancing, or exchange of real property in which a federal financial agency or regulatory authority is involved.

Commercial properties (above $250,000) require a certified general real estate appraiser.

true

Residential properties in federally related transactions valued at $400,000 or less are exempt from these federal appraisal requirements.

true

Applying Elements of Comparison

1. Financing 2. Conditions of Sale 3. Market Conditions 4. Location 5. Physical Characteristics (FCMLP)

What two timeframes are best for licensees to use for recently sold properties?

3-6 months

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.

market value

A price at which a willing buyer and willing seller can strike a deal given ordinary market conditions

Physical Depreciation

Also known as physical deterioration; loss in value resulting from wear and tear, such as a leaky roof; a type of curable depreciation

appraisal

An estimate of value as of a specific date and for a specific use

broker's price opinion (BPO)

An opinion of value prepared by a real estate licensee; similar to a comparative market analysis, but not as detailed; a lender or relocation company generally orders the BPO

site value

Assumes the land is vacant and bases opinion on highest and best use

Which of the following is typically used for purposes other than a prospective listing or sale?

BPO

DUST

Demand Utility - property's function Scarcity - Transferability - refers to the ease with which the seller can convey the property

Bracketing

Determines a probable range of property values by comparing a group of comparable sales to the subject

Calculate the projected net operating income for a property over the next year, then apply a capitalization rate.

Direct capitalization

Capitalization methods of the income approach use gross income, rather than net income, in their assessments of value.

False

GIM is appropriate for finding the value of a single-family home purchased as a rental property.

False

Investment property sale involving a federal financing agency

Federally Related Transaction

Divide the sales price of a comparable property by its annual gross income. Use the result on the subject property to determine a value.

Gross income multiplier

Your client is investing in a six-unit apartment building with laundry facilities and a vending machine.

Gross income multiplier

Your client wants a value estimate for a 15-unit apartment building.

Gross income multiplier

Divide the sales price of a comparable property by its gross rental income. Use the result on the subject property to determine a value.

Gross rent multiplier

Your client is considering investing in a three-unit residential income property.

Gross rent multiplier

Your client is purchasing a duplex and plans to live in one half while renting out the other half.

Gross rent multiplier

Article 11

Identification of the subject property Date prepared Defined value or price Limiting conditions, including statements of purpose(s) and intended user(s) Any present or contemplated interest, including the possibility of representing the seller/landlord or buyers/tenants Basis for the opinion, including applicable market data If the opinion is not an appraisal, a statement to that effect Disclosure of whether or when a physical inspection of the property's exterior was conducted Disclosure of whether and when a physical inspection of the property's interior was conducted Disclosure of whether the REALTOR® has any conflicts of interest

net operating income (NOI)

Income projected after deducting losses for vacancy, collection loss, and operating expenses

Depreciation

Loss in property value from any cause

Residential conventional loan that will be sold to Fannie Mae

Not a Federally Related Transaction

According to Keira, what's always a factor with every listing presentation?

Price

Replacement Cost

Reflects the cost to build a functionally equivalent improvement

Residential FHA or VA transaction

Sale or lease of a residential property

The three approaches are based on certain principles of value. On which value principle is the sales comparison approach based?

Substitution

Market conditions include things such as:

Supply vs. demand Interest rates Other economic factors Demographics Market timing

Reproduction Cost

The construction cost at current prices of an exact duplicate of the subject property.

Replacement Cost

The construction costs at current prices to replace a property. It won't be an exact duplicate, but serves the same purpose or function as the original.

assessed value

The dollar amount to which the local tax rate is multiplied to determine property tax owed

Gross Rent Multiplier (GRM)

The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property's value.

Reconciltation

The final step in the appraisal process in which the appraiser weighs the estimates of value from the three approaches to value (market, cost, income) and arrives at a final number

market price

The price at which a property can be bought or sold

Subsitution

The principle that a property's value is determined by what it would cost to purchase a similar substitute property

capitalization rate / cap rate

The return on investment that other investors in a given marketplace are receiving for a similar property; expresses the income a real estate investment produces as a percentage of its price

mortgage value

The value of the property in the eyes of a lender; the amount that the lender is willing to commit to the loan

value in use

The worth of a property as the owner is currently using it

A cap rate is a factor that shows the income a property produces, in relation to its price.

True

The current value of an income property can be determined by using estimates of future income.

True

Each appraisal approach relies on something to help determine a property's value. What does the sales comparison approach rely upon?

Value of similar properties in the market

Apply an expected rate of return to income from the entire holding period to find the current property value.

Yield capitalization

External Depreciation

a loss in value caused by an undesirable or hazardous influence offsite. Examples are heavily trafficked areas, industrial odors, or airport noise

broker's price opinion (BPO)

are estimates of price in case the lender must take over and sell the property. The real estate professional providing the BPO will often just drive by the property and take photos, then complete paperwork for the lender in exchange for a small fee.

New Construction

both residential and commercial property (that don't have comparable sales data available)

Interest rates determine

buying power

Sale or lease of a residential property

could be either

Income Approach

estimates the present value of any future rights or benefits of owning a particular property

Cost Approach

finding appraised value involves combining separate estimates of value for the building and the land to get the estimated value of the entire improved property

Special-purpose commercial uses

hospitals, some manufacturing plants, hotels, and other single-purpose properties

Incurable Depreciation

includes items not practical to correct. Examples are a furnace or a roof that hasn't reached the end of its economic life

appraisal

is a detailed analysis of market conditions, the property itself, comparables within close proximity to the subject property, recent sales and listings, land value, construction costs—everything a lender wants to know to value the property as collateral for a loan.

Functional obsolenscence

is a loss in value caused by defects in design, such as a poor floor plan or atypical or inconvenient sizes/types of rooms

comparative market analysis (CMA)

is an opinion of price arrived at by evaluating the property, its location within the market, its condition, competing properties for sale, recent sales, and current buying tastes and trends