Real Estate Dynamics: Chapter 12 (Value)

Depreciation

(n.) a lessening in value; a belittling

BPO

Broker Price Opinion

CMA

Comparative Market Analysis, a comparison of prices of recently sold homes that are similar to sellers home.

DUST

Demand Utility Scarcity Transferability

EGI - Effective Gross Income (Total Rent Revenue)

GPR - Vacancies, Concessions, Collections All rent & only rent income.

Insured Value

Replacement cost under an insurance policy

gains values

exponential growth

Appraisals

is an estimate or opinion of value based on an analysis of relevant data made by a qualified persons known as an appraiser

Appraisal Foundation

was created in 1987 to regulate the appraisal profession

Cost Approach Procedure steps

1. Estimate replacement cost new 2. Estimate depreciation 3. Subtract depreciation from replacement cost new 4. Estimate land value 5. Add land value

USPAP (The Appraisal Standards Board and the Uniform Standards of Professional Appraisal Practice)

1. is referred to as a living, breathing document : 2. it is reviewed and updated on a regular basis 3. Sets the standards by which all appraisal assignment must be completed but also 4. defines the ethical conduct of the appraiser.

Plus Land Value

200ft x $150 per foot = $30,000

value

A customer's subjective assessment of benefits relative to costs in determining the worth of a product

Economic Obsolescence

A loss in value due to factors outside the subject property, such as changes in competition or surrounding land use. Also referred to as external obsolescence.

Functional Obsolescence

A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.

Market Data Approach

A means of estimating value by comparing similar properties. Used when there is an active market and where comparables can be identified. Also called comparable sales approach.

Gross Income Multiplier (GIM)

A method of appraising income-producing property based on a multiple of the annual gross income; also called a gross rent multiplier.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Comp Inferior Add - CIA

Adjusting the comp value based on inferior features where the comp's values are adjusted upwards. add value

Comp better subtract - CBS

Adjusting the comp value based on superior features on a comp and values are adjusted downwards.

Capitalization Approach

An appraisal method used by an appraiser to arrive at a property's value based on the present worth of a property's future net operating income.

Narrative Report

An appraisal report summarizing all data, techniques, and appraisal methods used to arrive at a final conclusion of value; the most complete appraisal report supported with such documents as maps, photographs, charts, plat , floor plans, or contracts.

Opinion of value

An estimate of a property's worth given by a licensee for the purpose of a prospective sale.

The Appraisal Foundation is composed of what two independent boards?

Appraisal Standards Board and the Uniform Standards of Professional Appraisal Practices

The Appraisal Standards Board

Establishes the procedure for a competent appraisal trough the Uniform Standards of Professional Appraisal Practice

V&C vacancy and collection losses

Estimate of how much future income may be lost when a building isn't full or tenants don't pay the rent.

Which is less accurate the CAP or GRI/GRM?

GRI/GRM

Short Form Report

Generally used by lending institutions and government agencies. Consists of preprinted check sheets on which the appraiser records pertinent data.

NOI (net operating income)

Gross rental receipts +non rental income -vacancy -operating expenses =NOI Cash expenses only NOI must be divided by cap rate to arrive at intrinsic value

physical life

How long a structure remains physically sound

Principle of Supply and Demand

In appraising, a valuation principle stating that market value is affected by the intersection of supply and demand forces in the market as of the appraisal date.

Principle of Competition

Increased competition results in decreased profits for current providers. demand exceeds supply.

Development Phase

Involves taking all of the detailed design documents from the design phase and transforming them into the actual system

Condemnation Value

Just compensation for eminent domain

Accured Depreciation

Loss in a property's value resulting from physical deterioration, external depreciation, and functional obsolescence.

Principal of Conformity

Maximum value will be achieved by property located in area of similar property.

MLS

Multiple Listing Service

Selecting Comparable Sales

Must be properties that prospective buyers would consider substitutes Should be arms-length transactions Fairly negotiated prices that occurred under "normal" conditions For example, not a distressed sale Select to minimize required physical and locational adjustments never make adjustments to the subject property

lending institution

Organizations that extend loans

EGI (effective gross income) Formula

PGI (potential gross income) - V&C (vacancy and collection losses)

Projecting Net Operating Income

PGI - VC = EGI EGI - FVE = NOI Potential Gross income, Vacancy/Collection losses, Effective Gross income, Fixed & Variable Expenses.

Principle of Change

Real property is in a constant state of change. It goes through a four-phase life cycle of integration, equilibrium, disintegration, and rejuvenation.

Levels of Appraisers

Registration, licensure, certification. annual continuing education is required

USPAP

The Appraisal Standards Board and Uniform Standards of Professional Appraisal Practice

market price

The actual selling price of a property.

Effective Age

The age indicated by a structure's condition and utility.

Market Value

The amount for which something is sold in a given market. The arms-length transaction, payment in cash or the equivalent of money. open market exposure for a reasonable period of time.

assesed value

The amount the local government determines the property to be worth for tax purposes. 40% for GA

Sales Comparison

The approach used as the best indicator of value for existing properties

Gross Rent Multiplier (GRM)

The figure is used as a multiplier of the gross monthly income of a property to produce an estimate of the property's value. Comparable sales price divided by the monthly rent. Value of the subject = multiply the subjects rent by the GRM.

PGI (potential gross income)

The income one would receive if their property was 100% leased

Economic Life

The period of time over which a property may be profitably used.

Capitalization Rate

The rate of return is considered a reasonable return on investment - the return of investment, given the risk. The higher the rate - the lower the value, the lower the rate - the higher the value

Actual Age

The real age of a building

Investment Value

The value of the property to a particular investor, based on his or her specific requirements, discount rate, expectations, and so on.

Going Concern Value

The worth of a business, including real estate, goodwill, and earning capacity.

Operating Expense Ratio

Total operating expenses as a percent of net sales. operating expenses / EGI = expense ratio

Principle of Progression

a progressive increase in the property value because it is located near the property of greater value.

curable

adj. Capable of being remedied or corrected.

are some individuals are licensed

as both real estate agents and also as appraisers

capitilaztion approach

compares the relationship between comparables NOI and the sales price Value

properties that must be appriased

condemned or used for eminent domain

A licensed appraiser

does not have to have a real estate license

Staff appraisers

employed by lending institutions, government agencies or insurance companies to make appraisals for their employers

Cost Approach Procedure

estimated reproduction cost of improvements - estimated accrued depreciation = depreciated cost of building improvements + estimated value of site = indicated value by the cost approach

OE (Operating Expenses)

expenses to operate an office

Appraisal Fee

fee charged for a professionally prepared estimate of the fair market value of the property by an objective party

Stability or equilibrium

growth and value levels off

if a property is over-priced

it will not attract interest

losses in value

its association with less valuable properties

purchase and sale agreements

lender uses this to verify the property

insurance agents

need the appraisal to insure they can cover the value

liquidation value

net amount that can be realized by selling the assets of a firm and paying off the debt

Georgia 4 different levels

of licensure and certification required increasing demands in both education and experience.

investors

often buy and sell based on professional advice

Real estate salesperson usually base the price on a house

on the price brought by comparable properties that were sold or leased recently

Principle of Highest and Best Use

principle that the best use of a property in terms of value is the use most likely to produce the greatest net return (in terms of money or other valued items).

Phases

releasing lots at different times.

Fee appraisers

self-employed persons who perform their services on an individual basis for a negotiated fee.

The Appraisal Qualifications Boards

sets the requirements necessary to both acquire and maintain licensure and certifications.

decline or disintegation stage

stage of the life cycle when sales decline and the property values are less

Uniform Standards of Professional Appraisal Practice (USPAP)

standards to make sure appraisers are being competent

cost

sum of all past expenses that have gone into. bringing a property into being

salvage value

the estimated value of a fixed asset at the end of its useful life

if a property is under-priced

the owner is deprived of some of the return that is due

real estate licensees employ some of the techniques used by professional appraisers

they cannot refer to themselves as appraisers or state that they are making an appraisal , unless they have obtained an appraiser's license.

appraisal industry is required

to adhere to established guidelines that were created in response to the saving and loan crisis of the 1980s

Appraisals are performed

to solve a problem or answer a questions concerning value

incurable

unable to be healed or remedied

Lawyers need to know

value of the property for settlements, estate settlements or lawsuits.

The scope of the appraisal assignment

will vary depending on the objective of the appraisal