Ch. 10 Valuation and Appraisal

The front 25% of a commercial lot is generally regarded to hold _____ of the lot.

40% of the value. 4-3-2-1 rule. 40%/30%/20%/10%

The basic steps in the appraisal process are:

6 basic steps: 1) Define the problem 2) Make a preliminary survey 3) Gather general and specific data 4) Analyze the data 5) Reconcile the analyses 6) Estimate and report the value

An Appraisal Report

A written statement of the appraiser's opinion of value

What are the four essential elements of value?

DUST (Demand, utilities, scarcity, transferability)

What are the approaches to value?

MCI market data approach/cost approach/income approach

Four great forces that have been recognized to create, maintain, modify, and destroy value as they interact are:

PEPS (physical and environmental characteristics, economic influences, political and governmental regulations, social ideals and standards)

The three basic types of appraisal reports used in the appraisal professions are the _____ report, the _____ report, and the _____ report.

SNL: short form report narrative report letter form report

What method involves a [detailed estimate] of all labor and materials for each component of the building. It is commonly used by building contractors and professional cost estimators, but rarely used by appraisers.

The quantity survey method

What method involves the calculation of the cost for all [units of construction] installed in the building (walls, floors, heating units, etc.) It is ______, but rarely ______.

The unit-in-place cost method. detailed and accurate/ used by appraisers.

If a comparable sales property is lacking a feature that the subject property has, the appraiser would ______ the value of that feature from the sales price of the comparable sale property.

add. SBA (subject better-add)

Getting an indication of the value of the subject property from sales in the marketplace is accomplished by making ______ to the sales price of the comparable.

adjustments

Plottage Increment

an added increment of value is achieved when two or more contiguous units are placed under one ownership.

A written statement of the appraiser's opinion of value is called an _____.

appraisal report

Data for the sales comparison approach is obtained from a number of sources including ______, ______,______,and______.

appraisals own files, public records, multiple listing services (MLS), and buyers and sellers.

Examples of physical characteristics (from the four great forces) include:

availability of transportation, schools, churches, shopping, and the presences of physical hazards.

Examples of political and governmental regulations (from the four great forces) include:

building codes, zoning laws, environmental restrictions, and rent controls.

The income appraoch to value is also know as the _____approach.

capitalization

The concept of comparison is utilized in the income capitalization approach as the best way to select the _____.

capitalization rate.

An appraiser would have to hold a _____ to appraise a commercial property such as a _____in California.

certified general license/strip mall

Examples of environmental influences (from the four great forces) include:

climate, soil, topography, and natural barriers to future development

Unique properties include properties like schools, churches. city halls. and libraries because such properties have no ______ and produce no ______.

comparables/income stream

The income capitalization approach is based primarily on the appraisal concepts of _____,_____,and_____.

comparison, substitution and anticipation.

The ______ is used to appraise unique properties and to offer an ______ indication of value on residential properties.

cost approach/addition

What method is used for industrial or warehouses and is similar to the square foot method.

cubic foot method

The first step in the appraisal process is to _____.

define the problem

A narrative appraisal repot would contain a _____ being given.

definition of value

All professional appraisal reports contain a _____ being given.

definition of value

Location is an extremely important value factor because it influences the _____ for the property.

demand

The concept of substitution is utilized in the capitalization approach as one property can be substituted for another to achieve a _____.

desired rate of return.

What is an appraiser's first step with appraising vacant land?

determine the highest and best use

Cost

does not necessarily equal [value]. It is what an individual spent in the [past] or anticipates to spend in the [future] to [acquire or produce] a property.

Price

does not necessarily equal [value]. It is what one [pays] or [ask to receive] for a property.

The age-life method of depreciation, also known as _____, attributes an equal amount of depreciation _____ of the economic life of a building.

each year

Another name for external obsolescence is

economic obsolescence

Determining highest and best use is the ____an appraiser must take when appraising vacant land.

first step

The principle of highest and best use states that the highest and best use of land is that use that will produce ____. In short

great net return/it is the use of land that makes the land [most profitable]

All properties and neighborhoods go through a four-stage life cycle which includes:

growth/stability/decline/revitalization

External obsolescence is almost always______.

incurable

Functional obsolescence and physical deterioration are cause of depreciation ______within the property itself and can be ______ or ______.

inherent/curable/incurable

In an appraisal assignment, the type of appraisal report to be used may be heavily influenced by the _____ of the report.

intended use

A temporary and acceptable use of land that is not its highest and best use is called an ____use.

interim

The letter form report

is a brief report intended for a [single user] who is very familiar with the property.

Utility value

is a value directed toward a particular use. It is frequently termed a [subjective] value.

Appreciation

is an increase in value with the passage of [time].

Transferability

is the ability to legally convey [rights] or [interests] to a property.

Utility

is the capacity to [satisfy] a need or desire.

Replacement cost new

is the cost of constructing a building today of the same [size, quality of construction, and use]. This is what we use for residential properties.

Reproduction cost new

is the cost of constructing an exact [replica] of the appraised building.

Demand

is the desire in marketplace for a particular commodity. In order to be effective, demand must be supported by [purchasing power].

Narrative report

is the most [comprehensive] type of appraisal report.

Scarcity

is the present or anticipated [supply] of a product in relations to the [demand] for it.

Short for report

is the report most often used to appraise a [single family home].

A great help in stabilizing values according to the principle of conformity are ____ and ____ ordinances.

land use regulations/zoning

Appraisal depreciation is defined as

loss in value from any cause

Incurable depreciation is

loss in value that is [physically impossible or too expensive] to correct.

Curable depreciation is

loss in value that is physically and economically [feasible] to correct.

Sales comparison approach is also know as the _____.

market data approach

MCI

market data approach/cost approach/income approach which are the approaches to value.

Examples of economic influences (from the four great forces) include:

natural resources, level of employment, taxation, economic base, and development trends.

An appraisal is an

opinion of value

When appraising a residential property, an appraiser is most interested in the date the_____.

parties agreed to the contract.

Depreciation is caused by three general influences:

physical deterioration/functional obsolescence/external (economic) obsolescence

An added increment of value is achieved when two or more contiguous units are placed under one ownership. This is called _____?

plottage increment

Examples of social ideals and standards (from the four great forces) include:

population increase and decrease, rates of birth, death, marriage, and divorce, and attitudes towards education.

The income approach to value is concerned with the _____.

present worth of future benefits that may be derived from the property.

A good working definition of market value is the most ____ price the property should bring on the open market with a willing buyer and seller.

probably

In an appraiser, a lender is most interested in the date the _____. This is called the _____ of the appraisal or _____.

property was inspected/effective date/date of value

Adjustments are made in the areas of ______ characteristics and ______characteristics.

property/non-property

Limitations in the sales comparison approach can occur in times of ______.

rapidly changing economic conditions

The best comparable sales for the sales comparison approach are the most ______and ______.

recent/similar

When an appraiser analyzes the date a collected, he or she must _____ the analysis.

reconcile

Basically, the cost approach (AKA______) views value as a combination of value of the ______ as if vacant, and the cost to reconstruct the building new, less accred ______.

replacement cost approach/land/depreciation

Depreciation is the difference between the ______ of a property, and its ______.

replacement of cost new/market value

Market value

represents the amount of money a property can be sold in prevailing market condition at a given time and place, and frequently is termed [objective] value.

The sales comparison approach is used for the appraisal of ______.

residences and land.

The sales comparison approach is the _____ and the most _____ approach used by brokers and salespersons.

simplest and most common.

an appraisal is valid for a _____ only.

specific date

What are the methods of estimating building cost?

square foot method/cubic foot method/quantity survey method/unit-in place cost method

What method applies a dollar value per square foot of floor area based on known costs of similar structures, and is the ______ and most ______ method used by residential appraisers/

square foot method/fastest/most common

The principle of contribution

states that a [component part] of a property is valued in proportion to the contribution it brings to the property as a whole. Ex. will remodeling the kitchen bring value to the whole property.

The principle of conformity

states that the maximum value is achieved when land uses are [compatible] and a [reasonable] degree of architect is employed.

The principle of anticipation

states that the value is created with anticipated [future benefits] to be obtained from the property.

The principle of progression

states that the value of a less expensive house will tend to [increase] when it is located amongst many more expensive houses.

The principle of regression

states that the value of a more expensive house will tend to [decrease] when it is located amongst many less expensive houses.

The principle of substitution

states that the value of property will tend to be set by the cost of acquiring an [equally desirably] substitute property.

THe principle of supply and demand

states that values of property will change with the [fluctuation] of supply and demand.

The appraisal process recognizes certain well-defined ____to arrive at an opinion of value.

steps

The basis of the sales comparison approach is the principle of _____.

substation

If a comparable sales property has a feature that the subject property does not have, the appraiser would ______the value of that feature from the sales price of the comparable sale property.

subtract. CBS (comparable better-subract)

Economic life is the period of time a building earns _____ to justify its continued operation.

sufficient income

Effective age

tells us how old a structure [appears to be]. Effective age is based on the [quality of structure] and [maintenance] of the structure.

External obsolescence is

the cause of depreciation that originates [outside] the property lines.

All professional appraisal reports contain a definition of value being given. In a narrative report, the definition is found in _____ .

the statement of purpose section.

Value can be broken down into many different ____ and ____.

types and definitions

It is commonly accepted that the cost approach tends to set the ______ of value

upper limits

Two basic categories of value are ____ and ____ value.

utilities and market

Appraisal is referred to by the DRE as and ____.

valuation/market analysis

Examples of physical deterioration include ______,______,and______.

wear and tear from use/deferred maintenance/damage

Value is what something is ____in a given marketplace.

worth

Examples of external obsolescence include

zoning or legislative restrictions/change of locational demand/bad location/backing up to the freeway,airpot or railroad tracks.