BERT RODGERS CH 16
Is the insurable value greater or less than the market value of a property? Why?
Insurance value is LESS than market value because it does not include the value of the land
What is NOT included in OE?
Insurance, taxes, mortgage, capital improvements
What is physical deterioration?
Loss in value due to wear and tear
What is Potential Gross Income (PGI)?
Next year's income from rent (contract or market rent)
How many members on FREAB? How are they appointed?
Nine members, appointed by Governor and confirmed by the senate
Is Cap rate used for residential rental properties?
No
What does TAF's APB do?
Offers voluntary guidance on appraisal practices to anyone in the market
Which type of appraisal report is most commonly used in court testimony?
Oral report
What are the 3 categories of depreciation?
Physical deterioration Functional obsolescence External obsolescence
What does the Appraisal Subcommittee (ASC) do?
Provides oversight and a monitoring framework to TAF and FIRREA
What are the 3 methods to estimate reproduction and replacement cost when conducting an appraisal with the Cost Depreciation Method?
Quantity survey method Unit in Place method Unit of comparison
What are the levels of appraisers?
Registered trainee appraiser Certified residential appraiser Certified General appraiser
What are the 3 approaches to value?
Sales comparison approach Cost depreciation approach Income approach
What is the unit of comparison method in estimating costs?
Taking the cost per sqft of a benchmark building and multiplying it by the sqft of the subject building
Which appraisal principle is the basis for all mathematical methods used to form an opinion of value?
The Principle of Substitution
What is the principle of regression?
The appraisal principle that applies when an over improved property, surrounded by lower value properties, decreases in value to its proximity to those low value properties
What is the principle of progression?
The appraisal principle that applies when an under improved property, surrounded by higher value properties, increases in value due to its proximity to those high value properties
What is the principle of competition?
The appraisal principle that focuses on the effect of supply and demand
What is the principle of substitution?
The appraisal principle that recognizes that a buyer will not pay more for a property than he would for another with similar benefits
What is the principle of conformity?
The appraisal principle that states that properties in the same area should conform in style, size, and features
What is the principle of contribution?
The appraisal principle that states that the value of an improvement is the value that the property would lose if that component were removed
What is the "value in use?"
The net present value derived from income generated by a property used in a particular way
What is the overall capitalization rate? How is it derived?
The rate that will provide an adequate return on the investment Derived from comparable properties in the same market
What is the liquidation value of a property? Typical use?
The remaining value after all assets have been sold and debts paid Usually used for valuation of a failing business
What is the assessed value of a property?
The value assigned by an appraiser for ad valorem tax purposes
What is the investment value of a property?
The value to a specific individual, whether it be the highest a potential investor will pay or the lowest a seller will accept
What is the market value of a property?
The value to a typical member of the market
What is the purpose of Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989?
To regulate the RE appraisal market
What is the formula for the Value of a property using the Direct Capitalization Technique?
VAL = NOI/Cap Rate (V=I/R OR I = RV)
What is the insurable value of a property?
Value to replace + allowance for demolition/ removal
What are the 4 boards of TAF?
1. Board of Trustees (BOT) 2. Appraiser Qualifications Board (AQB) 3. Appraisal Practices Board (APB) 4. Appraisal Standards Board (ASB)
What are the 6 steps of the appraisal process?
1. Define the problem 2. Determine the scope/ collect data 3. Data Analysis 4. 3 Approaches to Value 5. Final opinion of value 6. Prepare a report
What are the 2 techniques of the Income approach?
1. Direct capitalization (cap rate) 2. Gross Multiplier
What are the 6 steps in the Cost Depreciation Method when appraising property?
1. Estimate vacant lot value 2. Estimate replacement/ reproduction cost 3. Estimate accrued depreciation 4. Depreciated Cost = Reproduction cost - depreciation 5. Depreciated cost of site improvements (driveway, fences, etc) 6. Total value estimate = Vacant lot value + Depreciated cost + Dep site costs
For what 5 areas are adjustments made to the price of a comparable property during the Sales Comparison Approach?
1. Financing terms 2. Conditions of sale 3. Market conditions 4. Location 5. Physical characteristics
What are the 3 types of Operating Expenses (OE)?
1. Fixed expenses 2. Variable expenses 3. Reserves for replacements (R)
What are the 7 steps in direct capitalization?
1. Forecast PGI 2. Estimate V & C 3. PGI - V&C = EGI 4. Estimate Operating Expenses 5. EGI - OE = NOI 6. Select overall cap rate 7. V = NOI/Cap
What are the steps in the sales comparison approach (3)?
1. Locate comparable properties 2. Adjust the comparable sales price 3. Reconcile the adjusted sales price
What is the education requirement for a Certified Trainee Appraiser? Exam?
100 hours appraisal education No state exam
What are the education requirements for a Certified Residential Appraiser? Exam?
200 hours appraisal education Bachelor's degree in any field 2,500 appraisal experience in last 2 years Course exam AND state exam
What are the education requirements for a Certified General Appraiser? Exam?
300 hours appraisal education Bachelor's degree in any field 3,000 appraisal experience in last 2.5 years Course exam ANDS state exam
Who makes up the 9 members of FREAB?
4 current appraisers with 5 year tenure 2 managers in appraisal industry 1 member representing corporate client base 2 members general public
How long is a FREAB member term? Term limits?
4 year terms, unlimited terms but no more than 2 consecutive
What is the quantity survey method in estimating costs?
A detailed list of the cost of every component included in building the main improvement on a vacant lot
What is external obsolescence?
A loss in property value due to external factors such as declining neighborhood, rezoning, etc
What is functional obsolescence?
A loss in value to a property due to failure to meet consumer preferences, whether by design, under/over improvement
What is the economic age life method?
A method to estimate accrued depreciation where the appraiser estimates the MAX economic life of an improvement and then estimates how far into that life it already is (effective age)
What iss The Appraisal Foundation (TAF)?
A non profit organization with 4 independent boards that together promote professionalism and create standards in the appraisal market
What is Effective Gross Income (EGI)?
Actual revenues expected for next year, including (PGI - V&C) and Other Income (OI)
What is the FL RE Appraisal Board (FREAB)?
Administers and enforced FS 475 Part 2
What is salvage value?
Amount received after selling parts of a demolished structure
What does an appraisal convey?
An OPINION of value
What is the principle of change?
An appraisal principle accounts for the potential various external forces that influence future benefits
What is the principle of anticipation?
An appraisal principle that estimates value based on anticipated future benefits
What is the principle of highest and best use?
An appraisal principle that states that a property is best used in a way that provides the greatest return ($ or other benefits)
What does TAF's BOT do?
Appoints members to other boards, secures funding for all boards, and oversees all boards
What is the Cost Depreciation Method of property appraisal? Typical use?
Assumes no one would pay more for a property than it would cost to buy a vacant lot and build a comparable property Cost of replacement/ reproduction - Depreciation + Land value = Value estimate Best for appraising new properties, renovations, and infrequently traded properties
Using GM and income, how do you find the value of a property?
Comparable Sales Price/ Comparable Rent = GM Subject Rent X GM = Subject Value
How is the GM found?
Comparable Sales Price/Gross Rent = GM REMEMBER: Rent can be monthly or annual (GRM or GIM)
What is the difference between cost, price and value?
Cost - amount paid to build or improve Price - amount paid in an RE transaction Value - Opinion of worth
Is value in use greater than or less than market value?
Could be either
What are the four elements of value for RE?
DUST Demand Utility Scarcity Transferability
What does TAF's ASB do?
Develops and amends the Uniform Standards of Professional Appraisal Practice (USPAP)
How does the economic age life method find the total accrued depreciation?
Effective Age/ Total economic life = Depreciation Rate Reproduction Cost + Depreciation Rate = Total Accrued Depreciation
What the TAF's AQB do?
Establishes education requirements for appraisers
What is the sales comparison report of property appraisal?
Estimate of the value based on sales of recent sales of comparable properties in the market
What is the replacement cost when performing the cost depreciation method of appraisal?
Estimated cost at current prices to build a comparable building using modern materials, design, and features
What is the reproduction cost when performing the cost depreciation method of appraisal?
Estimated cost to reproduce an exact replica of a building using the same materials
What is the Gross Multiplier Technique of the Income Approach to property appraisal?
Estimates value based on gross income (instead of NOI) of a comparison property, by finding the GM and multiplying the subject's income
What is the unit in place method in estimating costs?
Estimating cost of each component using nationally published cost manuals Shortcut to the quantity survey method
What is the Income Approach to property appraisal? How many techniques?
Estimation of value based on net income 2 techniques
When is the the Gross Multiplier technique usually used?
For residential rental properties
Which type of appraisal report is most commonly requested by lenders?
Form report
Which type of appraisal report is most commonly used in residential appraisals?
Form report
What are the 3 types of appraisal final reports?
Form report Narrative report Oral report
What are Reserves for Replacement (R)?
Funds that are set aside to replace/ repair components like appliances
What is the Direct capitalization technique?
Future income is converted into present value
What is market rent? Why use it?
Income projection based on market trend for comparable properties Used when there is questionable income sources
What is Vacancy and Collection Losses (V&C)? How is it normal expressed?
Income the owner will likely not receive Expressed as a % of PGI
