Section 5

sales comparison approach

sales comparison approach An approach to determining value using similar recent sales data Ex. Both licensees and appraisers use a sales comparison approach when arriving at an estimate of value.

What does FIRREA require?

A certain individual perform the appraisal

Unit 3 Quiz: What two types of data does an appraiser gather? Computer and hand-written General and specific Old and new Related and non-related

General and specific

Unit 4 Exam: You need to perform a sales comparison for your clients. Comparable A's adjusted sales price is $277,000. Comparable B's adjusted sales price is $255,000. How might you use this data to determine a list price range for the clients' home? Find the average of the adjusted sales prices of Comparable A and Comparable B .Give more weight to the list price on Comparable A, because it's lower. Give more weight to the list price on Comparable B, because the subject property will likely sell more quickly at this higher price. Give more weight to the list price on the comparable that's most similar to the property.

Give more weight to the list price on the comparable that's most similar to the property.

cost

(What it would cost to recreate today) Expense for labor, materials and items related to construction such as fees and permits. Ex. The cost to tear down and build anew was cheaper than renovating the existing building

A strip mall valued at $850,000 has a $67,500 annual net operating income. What is the capitalization rate for the strip mall?

7.9

National Association of REALTORS Code of Ethics, Article 11 - Tenets of a CMA

-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"

USPAP Steps

1. State the problem 2. Identify data needed 3. Gather and analyze data 4. Determine highest and best use 5. Estimate value of the land 6. Use three approaches to estimate property value 7. Reconcile values to determine final appraisal value 8. Report appraisal value

A property generates $30,000 in net operating income and has a 15% cap rate. Using the income approach, what is its value?

200,000

Contribution

A change in a property impacts the value as a whole. Does converting a garage into a family room contribute to or detract from value? That would be in the eyes of the buyer.

market value

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

Substitution

A property's value is determined by what it would cost to purchase a similar substitute property. If someone offered you a car that is an exact replica of another car but was $3,000 less, it would impact your perceived value of the other car.

principle of anticipation

A term used in valuing income property when using capitalization rate. Ex. The principle of anticipation says that the value of a property is determined in part by the current anticipation of future benefits.

Which of the following is a true statement about how adjustments are made in the sales comparison approach? Adjustments are made to the subject property, not the comparables. Appraisers adjust downward when a comparable is missing a feature found in the subject property. Appraisers adjust upward when a comparable is missing a feature found in the subject property. Only three adjustments per comparable property are allowed; otherwise it's not considered sufficiently similar.

Appraisers adjust upward when a comparable is missing a feature found in the subject property.

comparative market analysis (CMA)

An estimate of market value based on recent comparable sales for similar properties Ex. Gwen prepared a comparative market analysis for Jolene and told her, "Based on the sales prices of recent similar properties, I suggest a list price of between $235,000 and $250,000."

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 Ex. Chico's broker's price opinion (BPO) was prepared for XYZ Lending company on a potential foreclosure property

Unit 5 Exam: What's the best advice when challenging an appraisal? Be specific and concise about why the value opinion is different in your mind. Blame it on the appraiser. Don't bother asking the appraiser to explain why certain adjustments were made or not made. Suggest a minimum value for the appraiser to meet.

Be specific and concise about why the value opinion is different in your

In the sales comparison approach, using comparables that are five and 15 years old when appraising a subject that is 10 years old is an example of what? Bracketing Bridging Substituting Surrounding

Bracketing

In the sales comparison approach, which of these are selected and evaluated both quantitatively and qualitatively against the subject property? Alternatives Comparables Conformables Substitutions

Comparables

Unit 1 Exam: The Hendersons were hoping to list their home for $400,000; however, four other comparable homes in the neighborhood just went up for sale, and they now must list their property at $380,000 to sell quickly. Which economic principle is at work here? Competition Conformity Progression Substitution

Competition

Unit 1 Exam: Which of these principles of value is related to how a change to a portion of a property impacts the value as a whole? Contribution Impact on value Plottage Progression

Contribution

Burt owns a development company that specializes in constructing new, energy-efficient houses. The best approach for an appraiser to use in the appraisal of Burt's newly built homes is the ______. Appraisal process Cost approach Income approach Sales comparison approach

Cost approach

With the cost approach to value, what is the reproduction cost? Cost of the materials used in construction Cost to build a functionally equivalent improvement Cost to build an exact replica of the subject, with the same materials and deficiencies Cost to buy the property

Cost to build an exact replica of the subject, with the same materials and deficiencies

Unit 4 Exam: When a real estate professional goes beyond a broad brushstroke approach to a CMA and takes the time to research not only recent sales, but competition and expired listings, what trait are they exhibiting? Diligence Documentation Effective communication Empathy

Diligence

Four factors that influence value

Demand Utility Scarcity Transferability

Unit 1 Exam: Juaquin is an appraiser. What purpose do Juaquin and other appraisers serve? Buy a property Cause a sale to go through Determine a property's value Make a real estate agent's life better

Determine a property's value

Unit 3 Quiz: Jerry is appraising a five-bedroom home in the suburbs. After identifying the purpose of the appraisal, what does he need to do next? Determine the highest and best use. Estimate the value of the land. Identify the data that is needed. Use three approaches to estimate the value.

Determine the highest and best use.

Unit 4 Exam: When presenting a CMA, if you take the time to explain the CMA process, help the prospective sellers understand what's behind the numbers, and ultimately leave the decision of the list price up to them, what characteristic have you demonstrated? Documentation Effective communication Law-abiding Precision

Effective communication

Unit 5 Exam: An agent is working with seller clients who are very emotionally attached to their home. They want to list the property at $330,000, but the CMA indicates a price range of $255,000 to $275,000. What is the best course of action? Explain the importance of fair market value and offer to walk them through the process. List the home for $300,000 because it's a good compromise. List the home to sell, so start with the lower end of the CMA. Start with listing for $330,000 and see if you get any interest.

Explain the importance of fair market value and offer to walk them through the process.

Unit 1 Exam: Another term for a valuation is ______. Assessment Comparative market analysis Evaluation Formal appraisal

Formal appraisal

Unit 1 Exam: What economic principle is related to a property's most profitable use that is both legal and economically feasible? Anticipation Contribution Highest and best use Progression

Highest and best use

Unit 3 Exam: When appraisers look past how a property is being used to determine a more optimal function, what are they determining? Cost to replace Highest and best use Market value Value in use

Highest and best use

Unit 5 Exam: A home enters the market priced above fair market value. Within the same time frame, three additional homes enter the market listed between 5% and 10% less than the first home, at a fair market price. What is likely to happen with the first home?

If a property is overpriced from the beginning, buyers will move on and likely make a purchasing decision before the price is corrected on the overpriced home.

Unit 1 Exam: Marcus bought two adjoining pieces of land that were zoned for commercial use. When he realized that combining the two parcels would dramatically increase the land's value, he jumped at the opportunity. What's this an example of? Contribution Eminent domain Plottage Zoning

Plottage

Unit 1 Exam: Mary Ann is looking for the potential rate of return. What sort of value is she interested in? Assessed value Investment value Market value Value in use

Investment value

Unit 5 Exam: Getting the best price is always a factor for a seller, but the ______ that it actually would sell for must be another consideration. Guesstimate Highest price Market price Reduced price

Market price

Unit 5 exam: When market conditions indicate top-of-the-market pricing, is it always in your client's best interest to price it there?

No, it still has to appraise.

Unit 5 Exam: What are some ways you can make sure you're pricing a property at fair market value? Ask the sellers what the sales price should be. List to sell as fast as possible. Prepare a well-researched CMA. Price it at the price the house originally sold for to be fair.

Prepare a well-researched CMA.

Evaluation

Study of a property, potentially for land use or marketability

The economic principle of ______ says that when there are two houses in the same neighborhood with the same size, appeal, and utility, the lower-priced one will tend to sell first. Correlation Substitution Supply and demand Under-bidding

Substitution

Formal guideline for appraisals

Uniform Standards of Professional Appraisal Practice

price

The dollar amount agreed upon for the sale of a property Ex. If the list price for a property is set beyond what the market will bear, buyers will not buy.

assessed value

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

Plottage

The joining or assemblage of two neighboring land parcels increases the property value. In such a case, 1+ 1 often equals 3 or even 5. So two parcels worth $40,000 separately might be worth $120,000 when joined.

Unit 1 Exam: John's home is up for sale. He originally bought it five years ago for $300,000. Its current value is $350,000. His real estate agent notified him that a buyer just made an offer on his home for $365,000, which is the price other similar homes in the neighborhood are selling for and John accepts. What does the price of $365,000 represent? The appraised value The assessed value The investment value The market value

The market value

competition

The more similar properties that are on the market, the lower the price will be driven.

substitution

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

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

Highest and Best Use

This is the most profitable use that is both legal (conforms to zoning) and economically feasible (won't cost more than the increase in value).

Regression

This is the value a higher-quality property loses by being near a lower-quality property.

Progression

This is the value a lower-quality property gains by being near a higher-quality property. For example, if your neighbor builds on a second story in a quality remodel, the bump in value that your property receives is progression.

Appraisal

Unbiased estimate of value on a specific property on a specific date

Unit 5 Exam: An agent lists a home that receives an offer for full list price within one day in a buyers' market. There is a chance the agent ______ the home.

Underpriced

Unit 3 Exam: Soren is an appraiser. As such, what guidelines must he follow? NAR Code of EthicsNational Association of Appraisers (NAA) bylaws Real estate license law Uniform Standards of Professional Appraisal Practice (USPAP)

Uniform Standards of Professional Appraisal Practice (USPAP)

Unit 4 Exam: When you use a comparative market analysis to calculate a suggested listing price range for a particular property, which of the following actions will you take? Adjust prices from all properties listed or sold within a one-mile radius of the subject property. Calculate a price range based on data from expired listings and pending sales. Use adjusted prices from comparables and refine a range using active listings, expired listings, and possibly pending listings. Use the prices of sold comparables and active listings, adjusted for time listed.

Use adjusted prices from comparables and refine a range using active listings, expired listings, and possibly pending listings.

Unit 1 Exam: Which factor that influences value considers the property's function? Demand Scarcity Transferability Utility

Utility

Valuation

Valuation Process of forming an opinion of a property's value

Unit 5 Exam: Interest rates determine buying power. Which of the following is a true statement? When interest rates are high, buyers are often priced out of the market. When interest rates are high, buyers will be able to afford higher-priced homes. When interest rates climb, more buyers are encouraged to buy. When interest rates shift higher, buyers can still buy in the same price range.

When interest rates are high, buyers are often priced out of the market.

Unit 1 Exam: Your client is purchasing a single-family home with a conventional loan. The listing price is $410,000. Does this situation require a licensed or certified appraiser? It may be required, depending on in which state the property is located. It's at the seller's discretion. No, it's not required. Yes, it's required.

Yes, it's required.

investment value

can he get the rate of return he expects

cost approach

cost approach An appraisal valuation method based on the cost to replace or reproduce a property Ex. Appraisers often use the cost approach for new construction or for unique properties that do not have recent comparables. i.e. new construction areas

Appraisal (or valuation)

estimate of value of a particular property as of a particular date In addition to using age, square footage, location, recent sales—all the things you agents use—I also consider the cost to replace the property.

insured value

if the house goes up in flames, what will be the cost of replacing or rebuilding it?

federally related transaction

the loan will not be sold on the secondary market and isn't guaranteed or insured by a government entity such as FHA or VA - Residential properties under $400k are exempt

income approach

uses the income the property generates to estimate value. This type of valuation is based on defining the present value of future income, and the value principle of anticipation.

Conformity

value is created and maintained when the characteristics of a property conform to the demands of the market. For example, a house built in the middle of a commercial zone (due to zoning changes) would be valued differently than a house in the middle of a neighborhood made up of similar houses.

Value

what a property is worth