Real estate appraisal principles and procedures Flashcards

Real estate appraisal principles and procedures Flashcards VALUING THE SITEASITE VALUATIONis an estimate of value of a property, excluding the value of any existing or proposed improvements MILEOneMILEis 5,280 feet long.ESCHEATESCHEAT Is the power to have property revert to the state if the owner dies without heirs or a will.TRIANGLEATRIANGLEIs any three sided figure who sides are straight lines.REAL ESTATEIs the physical land and improvements VOLUNTARY LIENA VOLUNTARY LIEN Is a security interest that is created voluntarily by the debtor.APPRAISAL PROCESSThe orderly process utilized by appraisers to obtain a reliable and competent opinion of value is commonly called theappraisal process.AppurtenanceIs something that goes along with the ownership of land.PERIODIC TENANCYA lease that automatically renews itself until one of the parties takes action to terminate it (such as a month to month lease) creates a PERIODIC TENANCY.SQUARE MILEOneSQUARE MILEcontains 640 acres.LOT, BLOCK, AND TRACT SYSTEMThisLOT, BLOCK, AND TRACT SYSTEMallows land to be described by reference to an official map showing the boundaries of the parcel.THE APPRAISAL PROCESS1. define the appraisal problem.2. Preliminary analysis. ( determine the necessary and available resources required to solve the problem.)3. Collect, verify, and analyze the necessary data4. determine the properties highest and best use.5. estimate the value of the site.6. apply the three approaches to value.7. reconcile the various value indicators to reach a final value estimate.8. prepare and deliver an appropriate appraisal report.PROGRESSIONA modest home in an area of more expensive houses would see a relative increase in value calledprogression DISTANCEDISTANCEis a measurement of one dimension only, such as the width of a lot or the height of a building.PRINCIPLES OF VALUEThePrinciples of valueare series of statements or rules; together they describe the way value is created in the real estate market.REAL PROPERTY LIFE CYCLE ( AGE CYCLE)1. Development ( values increase)2. Maturity. (values stable)3. Decline ( values decrease)4. Revitalization ( Life cycle begins again)

HIGHEST AND BEST USE ANALYSIS (CHAPTER 3) highest and best use analysis indicates whether an existing improvements are contributing to the value of the land, or should be removed to permit some more profitable use. It's important when land and improvements must be valued separately (as in the cost approach to value).CONSTRUCTION COSTCONSTRUCTION COSTis the cost to build an improvement, such as a house.AREAAREAis the size of something in two dimensions.MARKET VALUEmarket valuerefers to the amount of cash or cash equivalent that is most likely to be paid for a property on a given date in a fair and reasonable open market transaction.1. Both the buyer and seller must be typically well informed as to the condition of the market in the subject property2. both the buyer and the seller must be acting reasonably, in their own self interest, and without undue duress.3. The property must be exposed to the market for a reasonable period of time.4. no extraordinary circumstances, such as liberal financing or concessions are involved.when these four factors are present, the transaction is said to be an "arm's length transaction".Estate in ReversionThe party (grantor) granting a life estate is said to hold an estate in reversion.REAL ESTATE CYCLEThe real estate property life estate cycle is a pattern in changing values. The first stage of cycle is theDEVELOPMENT STAGE("growth"), when values increase as raw land is improved. this is followed by a stage of relative stability in value, calledMATURITY("stability"), And then a stage of progressiveDECLINE.Decline invitesREVITALIZATION, as a physical structuralDecay and loss of market appeal causes lower and lower prices, thus attracting investors to invest in the area and restart the lifecycle process again.INCOME APPROACHTheINCOME APPROACHassumes that the value of property is indicated by the amount of income of the

property can generate: The greater the income, the greater

the value.SERVIENT (BURDENED) TENEMENTA property that is subject to an easement is known as a

SERVIENT ( BURDENED)TENEMENT.

LEASEHOLD ESTATEA tenant or lessee under a lease has a real property interest called a LEASEHOLD ESTATE.REGRESSIONwhen a property that is much more luxurious than surrounding properties suffers a decline in value, it is calledregression PRINCIPLE OF CONFORMITYPrinciple of Comformityproperty values are enhance when the use of surrounding properties conform to the use of the

subject property.

FOUR CHARACTERISTICS OF VALUE1. Utility2. Scarcity3. Transferability4. Effective demand PRINCIPLE OF SUPPLY AND DEMANDprinciple of supply and demand states that the value of the property is competitive market is determined by the relative levels of supply and demand ( The number of available properties and the number of people who want to buy those properties).THE PRINCIPAL OF APPRAISALappraisal is based on economic principles of value. They

are often referred to as: Appraisal principles, principles of

value, economic principles or just principles.RANGESRange lines divide the land into north-south strips calledRANGES.Estatesestate is the degree, nature, or extent of interest or rights a person has in a real property that includes the exclusive rights to occupy and use the real estate(the right to possession).CONSISTENT USE PRINCIPLEConsistent Userequires both the land and the improvements to be valued for the same use, even if they are being valued separately.TRANSFERABILITYTransferabilityIs the ability to will, lease, give, or sell a property Real propertyIs "the interest, benefits, and rights inherent to the ownership of real estate". These include the land, anything permanently attached or affixed to the land, anything incidental or appurtenant to the land, and anything immovable by law.INDIRECT COSTSINDIRECT COSTSRefers to the other costs that are incurred in the construction process. Examples of indirect cost include contractors overhead, architectural fees, financing costs( interest) and permit fees.UTILITYutility, meaning it must be able to satisfy some want or need of potential buyers.HIGHEST AND BEST USE PRINCIPLETheHighest and Best Useprinciple states that the value of property is determined by the most profitable use to which the property may reasonably (and legally) be put.INVOLUNTARY LIENSArise Through the operation of law. They include such liens as tax liens, judgment liens, and construction liens.Valuevalueis the monetary worth of property, goods or services to buyers and sellers.MARKETrefers to buyers and sellers interacting to exchange cash or other assets, Like property.TOWNSHIPOneTOWNSHIP (Standard) is 6 mi.² (36 mi.²) RECTANGLEARECTANGLEis any four-sided figure whose sides all meet at right angles (90 degrees)A=L x WAREA = LENGTH x WIDTHAREA= 100 FEET x 50 FEETA= 100 x

50A = 5,000 SQUARE FEET* AREA OF RECTANGLE =