Texas Principles of Real Estate 2 - Chp. 2 Real Estate Appraisal
How many hours of appraisal education is required to become a general certified real estate appraiser...? 75 hours 150 hours 200 hours 300 hours
300 hours
Principle of contribution
A component part of a property is valued in proportion to its contribution to the value of the whole. Holds that maximum values are achieved when the improvements on a site produce the highest (net) return, commensurate with the investment.
Economic Obsolescence
A loss in value due to factors away from the subject property but adversely affecting the value of the subject property. May include, zoning, location near a landfill, decreasing population in the area
Functional Obsolescence
A loss of value due to adverse factors from within the structure which affect the utility of the structure, value and marketability. May include, lack of parking, outdated designs, lack of bathrooms
The 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 - sales comparison approach
TAX DEPRECIATION:
A term used for accounting purposes to identify the amount of the decrease in value of a property that is allowed for tax purposes A homeowner can write-off the depreciation of their property as an expense. The STRAIGHT LINE method is commonly used for real property.
Assessed Value
A valuation placed upon a piece of property by a public authority as a basis for levying taxes on the property.
Utility
Ability or capacity of a good or service to be useful and give satisfaction to someone.
Principle of Substitution
Affirms that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and value substitute property, assuming no costly delay is encountered in making the substitution
Principle of anticipation
Affirms that value is created by anticipated benefits to be derived in the future.
When using sales data to compare to the subject property, appraisers should use sales that are...? Current Comparable Close All of the above
All - Current Comparable Close
Which of the following externalities can have a negative effect on home values...? Proximity to a landfill Proximity to a power plant Proximity to a noisy highway All of the above
All- Proximity to a landfill Proximity to a power plant Proximity to a noisy highway
CMA Comparative Market Analysis
An analysis of the competition in the marketplace that a property will face upon sale attempts. Watered down version of the Comparative Sales Approach of appraisal. Include close, cost, current sold and not sold - not an appraisal
appraisal
An estimate of the value of property resulting from an analysis of facts about the property.
One qualified by education, training and experience who is hired to estimate the value of real and personal property based on experience, judgment, facts, and use of formal appraisal processes is referred to as a/an...? Appraiser Attorney Real estate broker All of the above
Appraiser
Which of the following is the lowest real estate appraiser classification...? Appraiser trainee State licensed real estate appraiser Certified residential appraiser Certified general real estate appraiser
Appraiser trainee
This appraisal method consists of an analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting therefrom the estimated accrued depreciation, then adding the market value of the land...? Income approach Market data approach Cost approach Sales comparison approach
Cost approach
Which of the following appraisal methods will most likely be used to determine the value of a church...? Income approach Market data approach Cost approach Sales comparison approach
Cost approach
The loss of value of a property brought about by age, physical deterioration or functional or economic obsolescence is referred to as...? Depreciation Deflation Discount Capital expenditure
Depreciation
After the needed data has been obtained and verified, what is the next step in the appraisal process...? Determine the highest and best use State the problem Reconciliation Issue the appraisal report
Determine the highest and best use
What is the first step an appraiser takes when valuing a property using the cost approach...? Add the depreciated value of the improvements to the value of the land Estimate the amount of accrued depreciation Determine the current cost of the improvements Determine the value of the land as if it were vacant
Determine the value of the land as if it were vacant
A loss in value due to factors away from the subject property but adversely affecting the value of the subject property is known as...? Principle of conformity Principle of change Physical obsolescence Economic obsolescence
Economic obsolescence
The desire for possession or ownership backed by the financial means to satisfy that need is referred to as...? Effective Demand Net Demand Value Demand Market Demand
Effective Demand
The most probable use to which a property is suited that results in its highest value or highest returns to the land is known as...? Investment use Highest and best use Assessed use Insured use
Highest and best use
Principle of change
Holds that it is the future, not the past, which is of prime importance in estimating value. Change is largely the result of cause and effect.
Principle of competition
Holds that profits tend to breed competition and excess profits tend to breed ruinous completion.
Principle of Conformity
Holds that the maximum value is realized when a reasonable degree of homogeneity of improvements is present.
Physical Deterioration
Impairment of condition. Loss in value brought about by wear and tear, disintegration, use and actions of the elements; termed curable and incurable. May occur due to lack of maintenance, normal wear and tear, breakage and aging of building materials
An investor is in the process of purchasing an office building. The bank providing the mortgage for the property requires an appraisal to be done. Which of the following appraisal methods will the appraiser most likely use to determine the value of the office building...? Cost approach Income approach Sales comparison approach Market data approach
Income approach
.............. depreciation cannot be fixed at an economically feasible cost? Incurable Curable Economic Viable
Incurable
What is the second step in the appraisal process...? State the problem Determine the highest and best use List the data needed Reconciliation
List the data needed
LTV loan
Loan to value loan
The highest price in terms of money which a property will bring in a competitive and open market and under all conditions required for a fair sale is referred to as...? Assessed Value Market Value Investment Value Insured Value
Market Value
The sales comparison approach is also referred to as the...? Market data approach Cost approach Assessed approach Income approach
Market data approach
The most common objective of an appraisal is to develop an opinion of...? Assessed value Market value Insured value Investment value
Market value
The income approach determines value by applying a capitalization rate to the...? Net operating income Gross income Effective gross income After tax profit
Net operating income
How much experience is needed to become a real estate appraiser trainee...? No experience is needed At least 6 months working under a licensed appraiser At least 1 year working under a licensed appraiser At least 2 years working under a licensed appraiser
No experience is needed
Sales Comparison Approach (Market Data Approach)
One of the three methods in the appraisal process. A means of comparing similar type properties, which have recently sold, to the subject property. Commonly used in comparing residential properties.
Cost Approach (appraisal by summation)
One of the three methods in the appraisal process. An analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting therefrom the estimated accrued depreciation, then adding the market value of the land.
Income Approach
One of the three methods of the appraisal process generally applied to income producing property, and involves a three-step process1) Find net annual income2) Set an appropriate capitalization rate or "present worth" factor3) Capitalize the income dividing the net income by the capitalization rate
Appraiser
One qualified by education, training and experience who is hired to estimate the value of real and personal property based on experience, judgment, facts, and use of formal appraisal processes
The loss in value brought about by wear and tear, disintegration, and use and actions of the elements is known as...? Economic obsolescence Functional obsolescence Physical deterioration Capital expenditure
Physical deterioration
Value
Present worth of future benefits arising out of ownership to typical users/investors.
Appraisal may NOT be conducted by: Out of state appraiser with a temporary registration in Texas Appraiser Trainee Real Estate Broker Real Estate Appraiser
Real Estate broker
A single value is derived from the three appraisal methods of determining value during the ............ process? Pro-forma Verification Highest and best use Reconciliation
Reconciliation
The cost of replacing the subject improvement with one that is the exact replica, having the same quality of workmanship, design and layout, or cost to duplicate an asset is known as...? Reproduction cost Replacement cost Substitution cost Conforming cost
Reproduction cost
STRAIGHT LINE DEPRECIATION:
STRAIGHT LINE DEPRECIATION: A method of depreciation under which improvements are depreciated at a constant rate throughout the estimated useful life of the improvement
David is in the process of buying his first house. David's lender requires an appraisal to be done on the property. Which of the following appraisal methods will most likely be used to determine the value of David's house...? Income approach Cost approach Sales comparison approach Assessed approach
Sales comparison approach
This appraisal method consists of comparing similar type properties, which have recently sold, to the subject property...? Cost approach Sales comparison approach Income approach Assessed approach
Sales comparison approach
The supply of property in relation to effective demand is known as...? Utility Demand Scarcity Value
Scarcity
What is the first step in the appraisal process...? Gather the needed data State the problem Verify the data Determine the highest and best use
State the problem
Quantity Survey Method
The appraisal method of estimating building costs by calculating the cost of all of the physical components in the improvements, adding the cost to assemble them and then including the indirect costs associated with such construction.
Increasing & Diminishing Returns Principle
The cost of improving a property increases its value (law of increasing returns) only to a certain point; over-improving an obsolete property, or improvements that do not add to value are examples of the law of decreasing returns
Insured Value
The cost of replacing a structure completely destroyed by an insured hazard.
Reproduction Cost
The cost of replacing the subject improvement with one that is the exact replica, having the same quality of workmanship, design and layout, or cost to duplicate an asset.
Replacement Cost
The cost to replace a structure with one having utility equivalent to that being appraised, but constructed with modern materials and according to current standards, design and layout
Book Value
The current value for accounting purposes of an asset expressed as original cost plus capital additions minus accumulated depreciation.
Effective demand
The desire for a good or service backed by an ability to pay
Market Value
The highest price in terms of money which a property will bring in competitive and open market and under all conditions required for a fair sale, i.e., the buyer and seller acting prudently, knowledgeably and neither affected by undue pressures.
Plottage value
The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.
Plottage
The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot. The sum of the parts is worth more than the individual parts added together
Principle of externalities
The influences outside of a property can have a positive or negative affect on its value
Income Approach
The method that adds all the income generated by the production of final goods and services to measure the gross domestic product. - income will influence the value of property
Highest and Best Use
The most probable use to which a property is suited that results in its highest value or highest returns to the land
EFFECTIVE AGE OF IMPROVEMENTS
The number of years of age that is indicated by the condition of the building materials, which is distinct from chronological age.
Economic Life
The period over which a property will yield a return on the investment over and above the economic or ground rent due to land.
Market Price
The price paid regardless of pressures, motives or intelligence
Supply and Demand
The principle that states the value of a property will increase if the supply decreases and the demand will either increase or remains constant, and visa versa
Capitalization Rate
The rate of return a property will produce on the owner's investment.
Transferabilty
The relative ease with which ownership rights are transferred from one person to another.
Scarcity
The supply of property in relation to effective demand.
The relative ease with which ownership rights are transferred from one person to another is known as...? Demand Scarcity Substitution Transferability
Transferability
(T/F) Real estate appraisers used to appraise a property cannot be selected by the real estate brokers involved in the transaction...? T (True) F (False)
True
A typical residential appraisal report is issued on a...? HUD-1 Form National Appraisal Form Uniform Residential Appraisal Report Estimated Home Value Appraisal Report
Uniform Residential Appraisal Report
The capacity to satisfy human needs and desires is referred to as...? Scarcity Utility Value Demand
Utility
The present worth of future benefits arising out of ownership to typical users/investors is known as...? Cost Return Value Interest
Value
Depreciation
a lessening in value
In utilizing the income approach to value a. the capitalization rate or rate of return must be estimated b. depreciation must be determined c. sales of similar properties must be considered d. reproduction or replacement cost of the building must be computed
a. the capitalization rate or rate of return must be estimated
Opinion of value
appraisal
A real estate appraiser must determine certain data before value can be computed by the income approach. Which of the following is NOT required for this process a. annual gross income b. accumulated depreciation c. capitalization rate d. annual net operating income
b. accumulated depreciation
Which is NOT an element of value utility balance scarcity transferability
balance
Sales comparison approach
check sales process of recently sold homes in area
Elements of value include DUST which refers to:
demand, utility, scarcity, transferability
Pricing - responsibility falls on...
the listing broker or agent, but the seller has the final decision
highest and best use
the most probable use a property is suited that results in the highest value or return to the land
Property's annual net income is $31,500 and it is valued at $300,000 - what is capitalization rate? (net income/value = rate)
10.5%
According to the IRS, residential properties depreciate over (years)
27.5 years
According to the IRS, commercial properties depreciate over (years)
39 years
Comparitive Market Analysis (CMA)
lite variation of the sales comparison approach to help[ buyers and sellers estimate a market value
two properties sit next door to each other, 123 and 125 elm st., each worth appx. 60,000. If the owner combines them to sell together they are worth $150,000. What principle does this illustrate contribution externalities plottage substitution
plottage
Reconciliation
taking the values indicated by differing approaches and reconciling them into one value
income approach
estimate future expenses and operating costs
sellers net return
the money a seller walks away with after closing on a property - after commissions and closing costs or other fees
How many hours of appraisal education is required to become an appraiser trainee...? 75 hours 150 hours 180 hours 260 hours
75 hours
Gross rent multiplier
A number which, times the gross income of a property, produces an estimate of value of the property.
John builds his 6 bedroom home with an indoor swimming pool and basketball court in a subdivision with 3/2 bath homes. The value of his house would most likely be impacted by the principle of: Conformity Functionality assemblage contribution
conformity
Cost approach
determine $ amount of depreciation
A BPO (Broker Price Opinion) is
is an estimate of value most often requested by a lending institution of a real estate broker to determine the value of a foreclosed property.
75% of the marketing of a home is...
pricing a home accurately
cost appraoch
value determined by cost to reproduce same property
