Section 5 -
Yield Capitalization
Analyzes cash flows for multiple future years
AMCs that are found to be in violation of licensing requirements can be fined up to _______ per violation.
$10,000
Which economic principle says that value is created and maintained when the characteristics of a property fit in with its surroundings?
Conformity
Direct Capitalization
Converts a single year's expected income (or an annual average) into a market value
The Appraisal Foundation
national organization comprised of representatives of major appraisal organizations and those of related industries
Curable Depreciation
refers to an item that can be repaired or replaced, and where the cost to cure the item is less than or the same as the anticipated increase in the property's value after the item is cured
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
requires that federally related appraisals be conducted by a state-licensed or certified appraiser.
Appraisal management companies are required to _______ the work of all appraisers.
review
unique properties
such as highly energy-efficient houses, residential acreage with excess land, historic houses, and high-dollar houses with many amenities
Reproduction Cost
the cost to build a new building that is exactly like an existing building in every physical detail
federally related transaction:
transactions for sale, lease, purchase, investment, refinancing, or exchange of real property in which a federal financial agency or regulatory authority is involved.
Commercial properties (above $250,000) require a certified general real estate appraiser.
true
Residential properties in federally related transactions valued at $400,000 or less are exempt from these federal appraisal requirements.
true
Applying Elements of Comparison
1. Financing 2. Conditions of Sale 3. Market Conditions 4. Location 5. Physical Characteristics (FCMLP)
What two timeframes are best for licensees to use for recently sold properties?
3-6 months
comparative market analysis (CMA)
A comparison of the prices of recently sold homes that are similar to a listing seller's home in terms of location, style, and amenities.
market value
A price at which a willing buyer and willing seller can strike a deal given ordinary market conditions
Physical Depreciation
Also known as physical deterioration; loss in value resulting from wear and tear, such as a leaky roof; a type of curable depreciation
appraisal
An estimate of value as of a specific date and for a specific use
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
site value
Assumes the land is vacant and bases opinion on highest and best use
Which of the following is typically used for purposes other than a prospective listing or sale?
BPO
DUST
Demand Utility - property's function Scarcity - Transferability - refers to the ease with which the seller can convey the property
Bracketing
Determines a probable range of property values by comparing a group of comparable sales to the subject
Calculate the projected net operating income for a property over the next year, then apply a capitalization rate.
Direct capitalization
Capitalization methods of the income approach use gross income, rather than net income, in their assessments of value.
False
GIM is appropriate for finding the value of a single-family home purchased as a rental property.
False
Investment property sale involving a federal financing agency
Federally Related Transaction
Divide the sales price of a comparable property by its annual gross income. Use the result on the subject property to determine a value.
Gross income multiplier
Your client is investing in a six-unit apartment building with laundry facilities and a vending machine.
Gross income multiplier
Your client wants a value estimate for a 15-unit apartment building.
Gross income multiplier
Divide the sales price of a comparable property by its gross rental income. Use the result on the subject property to determine a value.
Gross rent multiplier
Your client is considering investing in a three-unit residential income property.
Gross rent multiplier
Your client is purchasing a duplex and plans to live in one half while renting out the other half.
Gross rent multiplier
Article 11
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 Disclosure of whether or when a physical inspection of the property's exterior was conducted Disclosure of whether and when a physical inspection of the property's interior was conducted Disclosure of whether the REALTOR® has any conflicts of interest
net operating income (NOI)
Income projected after deducting losses for vacancy, collection loss, and operating expenses
Depreciation
Loss in property value from any cause
Residential conventional loan that will be sold to Fannie Mae
Not a Federally Related Transaction
According to Keira, what's always a factor with every listing presentation?
Price
Replacement Cost
Reflects the cost to build a functionally equivalent improvement
Residential FHA or VA transaction
Sale or lease of a residential property
The three approaches are based on certain principles of value. On which value principle is the sales comparison approach based?
Substitution
Market conditions include things such as:
Supply vs. demand Interest rates Other economic factors Demographics Market timing
Reproduction Cost
The construction cost at current prices of an exact duplicate of the subject property.
Replacement Cost
The construction costs at current prices to replace a property. It won't be an exact duplicate, but serves the same purpose or function as the original.
assessed value
The dollar amount to which the local tax rate is multiplied to determine property tax owed
Gross Rent Multiplier (GRM)
The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property's value.
Reconciltation
The final step in the appraisal process in which the appraiser weighs the estimates of value from the three approaches to value (market, cost, income) and arrives at a final number
market price
The price at which a property can be bought or sold
Subsitution
The principle that a property's value is determined by what it would cost to purchase a similar substitute property
capitalization rate / cap rate
The return on investment that other investors in a given marketplace are receiving for a similar property; expresses the income a real estate investment produces as a percentage of its price
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
A cap rate is a factor that shows the income a property produces, in relation to its price.
True
The current value of an income property can be determined by using estimates of future income.
True
Each appraisal approach relies on something to help determine a property's value. What does the sales comparison approach rely upon?
Value of similar properties in the market
Apply an expected rate of return to income from the entire holding period to find the current property value.
Yield capitalization
External Depreciation
a loss in value caused by an undesirable or hazardous influence offsite. Examples are heavily trafficked areas, industrial odors, or airport noise
broker's price opinion (BPO)
are estimates of price in case the lender must take over and sell the property. The real estate professional providing the BPO will often just drive by the property and take photos, then complete paperwork for the lender in exchange for a small fee.
New Construction
both residential and commercial property (that don't have comparable sales data available)
Interest rates determine
buying power
Sale or lease of a residential property
could be either
Income Approach
estimates the present value of any future rights or benefits of owning a particular property
Cost Approach
finding appraised value involves combining separate estimates of value for the building and the land to get the estimated value of the entire improved property
Special-purpose commercial uses
hospitals, some manufacturing plants, hotels, and other single-purpose properties
Incurable Depreciation
includes items not practical to correct. Examples are a furnace or a roof that hasn't reached the end of its economic life
appraisal
is a detailed analysis of market conditions, the property itself, comparables within close proximity to the subject property, recent sales and listings, land value, construction costs—everything a lender wants to know to value the property as collateral for a loan.
Functional obsolenscence
is a loss in value caused by defects in design, such as a poor floor plan or atypical or inconvenient sizes/types of rooms
comparative market analysis (CMA)
is an opinion of price arrived at by evaluating the property, its location within the market, its condition, competing properties for sale, recent sales, and current buying tastes and trends