16 PROPERTY VALUATION AND APPRAISAL

How is a CAP rate calculated?

Capitalization Rate = Net Operating Income / Current Market Value.

Your client is selling a unique property in a remote part of the state with no comparable to go by, what method(s) of appraisal can be used in this case?

Cost approach is most commonly used on rare or public properties such as libraries, schools or churches where it is hard to find comparable properties

What is fair market value?

Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act and both having reasonable knowledge of the facts.

What are the four components that affect land value?

Four Components of Value are Demand, Utility, Scarcity, and Transferability (DUST).

For income producing properties, what is an alternative to the CAP rate? How is this calculated?

GRM is Gross Rent Multiplier. It is the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, utilities,GRM Formula = Market Value (/) Annual Gross Income

Your client is trying to sell their home. It was built in 1963 and though it was common then, it now has comparably low ceilings. What type of depreciation is this?

It is Functional Depreciation as caused by a reduction in the usefulness or desirability because of an outdated design.

From a lender's perspective, what is the purpose of an appraisal?

Lenders most often require an appraisal before issuing a loan to ensure that the money the seller is asking meets the value of a non-interested licensed 3rd party.

You are representing a buyer, the home they are trying to purchase has appraised for a price much lower than anticipated. The seller is irate at the low priced appraisal and their agent demands from you a copy of the appraisal. Are you allowed to send them a copy?

No, the Sellers don't own the appraisal and are NOT entitled to see a copy. However, the sellers can ask buyers for a copy but legally not entitled to it.

You have just been given a vacant 5 acre plot of land in the middle of a growing city. How would you use it to its highest and best use?

Optimal use of a property determines its highest value. A multi-unit condo complex overlooking the ocean is that lands best use.

What is the difference between Replacement and Reproduction Cost?

Reproduction Costs is the cost of an exact reproduction and used in historical buildings or buildings with unique character. On the other hand, Replacement Costs is the cost of rebuilding using current materials.

What type of appraisal approach/method can be used for appraising land? Is this a common method for residential properties as well?

Substitution is the ONLY type of appraisal that can be used when appraising LAND. It is the most common appraisal used for Residential Properties and Income producing properties.

What are the three valuation approaches of appraising?

Three Valuation Approaches for appraising are 1). Sales Approach 2). Cost Approach 3). Income Approach

Regard CAP rates, when expenses go up, value goes...

When the CAP rate goes up, the value of a property goes down. As Expenses go up, money earned lessen and ultimately lower the value of property.

All of the following are correct components of the value of land with the exception of: Select one: a. Anticipation b. Scarcity c. Transferability d. Demand

a. Anticipation

An appraisal that was ordered by the institutional lender, who is providing the buyer with an FHA loan is owned by the: Select one: a. Buyer b. Seller c. Bank d. Broker

a. Buyer

Which appraisal method would most likely be used for a historical lighthouse on an isolated island? Select one: a. Cost approach b. Income approach c. Loan data approach d. Sales comparison approach

a. Cost approach

A mining company ceased operations permanently nearby a small town. The town was primarily inhabited by miners who lost their jobs and moved away, causing the price of land to plummet. What component of the value of land does this relate to? Select one: a. Demand b. Scarcity c. Transferability d. Utility

a. Demand

Which of the following would be considered an improvement: Select one: a. Installing Solar on a rental property b. Refinished hardwood flooring c. Redoing the plaster in an existing cracked plaster pool d. Changing the appliances in a vacation rental

a. Installing Solar on a rental property

Which appraisal is the only method allowed to determine the value in LAND? Select one: a. Market Data b. Factual Data Approach c. Cost Approach d. Comparison Value Approach

a. Market Data

Which appraisal is the only method allowed to determine the value in LAND? Select one: a. Market Data b. Factual Data Approach c. Cost Approach d. Comparison Value Approach Clear my choice

a. Market Data

The cost to rebuild the existing structure in today's dollars and using currently available items would be: Select one: a. Replacement Cost b. Reduction Valuation c. Cost in Place d. Reproduction Cost

a. Replacement Cost

What type of appraisal method is the only approach that can be used when valuing land? Select one: a. Sales comparison approach b. Income approach c. Cost approach d. Loan data approach

a. Sales comparison approach

A home built in 1959 with an unattached garage is in a neighborhood of newer homes having attached garages. What type of depreciation has occurred? Select one: a. Economic depreciation b. Functional depreciation c. Comparative depreciation d. Physical depreciation

b. Functional depreciation

What is an alternative method to determining the capitalization rate when comparing rental properties: Select one: a. Sales comparison approach b. Gross rent multiplier The GRM is can be used to determine value based on rents earned vs sales price c. Capitalization approach d. Current market value

b. Gross rent multiplier The GRM is can be used to determine value based on rents earned vs sales price

Decreasing home values due to a prison being built in the area is an example of the economic factor of: Select one: a. Anticipation b. Regression c. Directional growth d. Plottage

b. Regression

The only person allowed to write an appraisal report is a(an): Select one: a. B and C b. Broker c. Appraiser d. Lending institution

c. Appraiser

Which party can determine if a property is being used to it's highest and best use? Select one: a. Developer b. Land Surveyor c. Appraiser d. County Assessor

c. Appraiser

Because of the automotive industry suffering in Detroit, home values depreciated drastically due to what: Select one: a. Comparative depreciations b. Functional depreciation c. Economic depreciation d. Physical depreciation

c. Economic depreciation

Which appraisal method would most likely be used for an apartment complex? Select one: a. Cost approach b. Loan data approach c. Income approach d. Sales comparison approach

c. Income approach

Excess land has what type of value: Select one: a. Material Gain Value b. Physical Value c. Inherent Value d. Economic Loss Value

c. Inherent Value

The cost to rebuild the existing structure in today's dollars and using currently available items would be: Select one: a. Cost in Place b. Reproduction Cost c. Replacement Cost d. Reduction Valuation

c. Replacement Cost

Most single-family homes are appraised using this method: Select one: a. Cost approach b. Loan data approach c. Sales comparison approach d. Income approach

c. Sales comparison approach

The owner of a small apartment complex recently gave the property a facelift which cost $42,000 and took 6 months. During that time, the owner paid for the parking lot to be repaved at a cost of $6400. Lastly, the new roof and windows cost $14,000. The upside was that the rents increased and the vacancies went from 14% to 7%. Which of the following is not true: Select one: a. The cap rate decreased b. The value of the building went up c. The cap rate increased d. The increase in rents also contributed to a higher valuation

c. The cap rate increased

Using a capitalization method to find values in an apartment building, an appraiser may review the costs associated with running the building. It's openly discussed that by decreasing the costs, the ____________ of the building would go ____________? Select one: a. Costs, UP b. Costs, DOWN c. Value, UP d. Value, DOWN

c. Value, UP

An appraiser in training in Arizona must work for how many years as an apprentice to an appraiser? Select one: a. 1 year b. 0 years c. 5 years d. 3 years

d. 3 years

A study of the prices of similar properties using both real time and historical data to give an idea of current and future market value for a subject property is referred to as: Select one: a. Superlative statistics b. Appraisal c. Brokers Price Option d. Comparative market analysis

d. Comparative market analysis

Freddie Mac, Ginne May and FDIC loans usually require a certified appraisal. What are these loan types? Select one: a. Secondary Market Loans b. Conventional Loans c. Appraisal Based Loans d. Government Insured Loans

d. Government Insured Loans

Increasing property values by combining separate parcels of land; Select one: a. Conjoining b. Progression c. Congregation d. Plottage

d. Plottage

Most appraisers follow the standards set forth by the: Select one: a. Appraisal Standards Institute (ASI) b. Board of Authorized Appraisers (BAA) c. United States Appraisal Association (USAA) d. Uniform Standards of Professional Appraisal Practice (USPAP)

d. Uniform Standards of Professional Appraisal Practice (USPAP)

Can you as a real estate agent, perform an appraisal for your client who is selling their home? If not, what kind of pricing expectations/guidance can you offer?

Agents perform a comparative market analysis for their clients to help them determine a price to list when selling a home or a price to offer when buying a home.

Who can order an appraisal?

Appraisals can be ordered by anyone on any property. Banks, Lenders, Government, Owners, Speculators are examples of who can order an appraisal.q

What type of appraisal method is usually used for appraising commercial buildings?

Appraisers generally use income method for commercial buildings such as shopping centers, office buildings, rental property, and apartment buildings.