Valuation Fundamentals Flashcards

Valuation Fundamentals Flashcards Cost approachA new house in a growing subdivision. (Cost approach is best for a new house in a growing suburb. Income approach is best for a four-unit apartment being purchased by an investor. Sales comparison approach is nest for a condo in a community with high turnover. Watch as Sam summarizes the three approaches next.) The immobility of land hurts its value in a bad market.True (The immobility of land helps its value in a good market since other land can't be moved in to take away potential customers, but it hurts it in a bad market as it can't be relocated to a better position to attract buyers.) When performing a CMA, which properties should a licensee evaluate?closed transactions, current listings, expired listings and pending sales (Each of these properties - is similar in size, style, and neighborhood - could be considered when performing a comparative market analysis) MarketA place where buyers and sellers come together to buy and sell services or products. A market can overlap neighborhood boundaries. Markets can be divided into sub-markets.Each of these is a physical characteristic that may affect real estate values EXCEPT transferability (Physical characteristics include land's immobility, uniqueness, and indestructibility. Transferability is a value characteristic associated with real estate. The other value characteristics are demand, utility, and scarcity.Remember D-U-S-T.Market PositionThe position an agent's listing is in compared to similar homes in the same neighborhood at a similar price.It is the seller who decides how to price his property when listing it for sale.True (A licensee can - and should - advise a seller client on what to ask for his property, but ultimately, it is the seller's decision.) PriceThe amount asked, offered, or paid for a property.Effective DateThe date for which value was established when doing an appraisal.ReconciliationThe appraisal process of analyzing the values derived from the different appraisal approaches to arrive at a final value estimate or opinion.PlottageAn increase in value, over the cost of acquiring the separate parcels, by successful assemblage, usually due to a change in use.ProgressionA principle that says the value of a smaller and less expensive home is positively affected when it is surrounded by larger and more expensive homes. Usually said about the "worst" home in the "best"area.

A homeowner spends $50,000 for kitchen cabinets in a neighborhood where the high-end value of homes is $175,000. This is an example of negative contribution.True (The expenditure for kitchen cabinets is no doubt an over-improvement and is a prime example of the effects of the principle of decreasing returns. Conformity and regression may be at work here, too. Does the typical buyer price range want, need, or maybe most importantly, expect this level of cabinetry? It may influence the buyer's opinion of the quality of the property, but almost certainly not dollar-for-dollar. These are important concepts for you to understand when you're working a seller who cannot understand why his overpriced home is not selling.) Carrie is selling her home. She needs to pay off a $120,000 mortgage. Her estimated closing costs are $3,000, and she has agreed to pay a 6.5% commission. After the sale, Carrie wants to have at least $40,000 so that she can make a down payment on a new condo. What is the minimum she can accept on the sale of her home?$174,332 (First, add all of the money that has been

designated: $120,000 + $3,000 = $ 40,000 = $163,000.

This is the desired net. Now, factor in the commission:

100% = 6.5% = 93.5%. Using T-Math: Whole (total sales

price) = Part (net amount + expenses) / Percent (100% -

commission) and plug in the known variables: $163,000 /

.935 = $174,332. The minimum offer Carrie should accept is $174,332.) Sales comparison approachA condominium in a community with high turnover (Cost approach is best for a new house in a growing suburb.Income approach is best for a four-unit apartment being purchased by an investor. Sales comparison approach is nest for a condo in a community with high turnover. Watch as Sam summarizes the three approaches next.) ComparablesOther similar properties that have sold in a certain area.Also called Comps.Let's say your CMA indicates that a reasonable asking price for Carrie's property is $160,000, and you're sure that her house will not sell for $175,000. Are you obligated to lost for $175,000 if that's what she wants?Yes (The list price is always the decision of the seller. Your duty of obedience means that you would have to defend your client's pricing decision. Sam will wrap up this topic with another example and share some test-taking advice, and then it's time for the terminology review.) Broker Price Opinion (BPO)The estimated value of a property as determined by a real estate licensee or other qualified individual. Often done at the request of a lender for non-federally related property transactions.AnticipationAn economic principle that says value is created by the expectation of future benefits, such as profit on resale, pleasure, tax shelter, production, income, etc. Anticipation is the foundation of the income approach.An appraisal is valid only as of its effective dateTrue (Change is constantly occurring, and so value is also subject to constant change. This is why an appraisal is only valid as of its effective date) ProgressionA 1,200 sq. ft. house on a street of highly desirable 3,000 sq. ft. homes will be more valuable than it would be on a street of similar 1,200 sq. ft. homes. (Expecting a change in

value is anticipation; an over-improvement whose price cannot be recaptured is contribution; a buyer willing to settle for a similar house is substitution; a small house with greater value because of the highly desirable large houses around it is progression.) BLANK is what property is expected to sell for; BLANK is what the property actually sold for.Value / price (Market value is what property is expected to sell for; market price is what the property actually sold for .)

In which step of the appraisal process would you determine highest and best use?collect data/analyze data (Determining the highest and best use of the property occurs during the analysis of the collected data) If a house sits on a widened street and is surrounded by commercial buildings, that land would be more valuable if it were put to a commercial use.True (This is the very essence of the concept of highest and best use. Land achieves its greatest value when it is put to its maximally productive use. Sam Martin will discuss this important task in the appraisal process next.) The primary purpose of a comparative market analysis is to determine a range of probable selling prices for a homeowner (The goal her is for the real estate licensee to assist the seller by providing a range of probable selling prices for the given subject home.) DOM (Days on Market)The time period between listing a property and either selling or removing it from the market.See if you can put the steps in the appraisal process in the proper order 1- Define the problem, 2 - Determine the scope for eh work,

• - Collect data/analyze data, 4 - Apply the approaches of

value, 5 - Reconcile the final estimate of value, 6 - Report the finings to the intended user(s) A house is violating conformity, and so its value is less than it might be in a more suitable neighborhood. This is an example of progression.False (A "superior" property that is worth less because it does not conform is an example of regression. An "inferior" property that is worth more in a neighborhood to which it does not conform would be an example of progression.) Will and Gwen are getting a divorce and need to sell their house. Ursula is considering purchasing the home. Her agent, Betty, just finished a competitive market analysis on the home. Who is the most likely audience for Betty's value estimation?Ursula (Buyer agent Betty's value estimation is really only for her client, Ursula. An attorney or accountant in the divorce case might seek a comparative market analysis or broker price opinion from a difference licensee. The lender would likely need a formal appraisal performed by a licensed appraiser.) Which CANNOT define a neighborhood's boundaries? ethnicity of residents (Almost anything can define a neighborhood, except for race, ethnicity, and other characteristics of protected classes.) RegressionA principle that says the value of a larger, more expensive home is negatively affected when it is surrounded by smaller, less expensive homes. Usually said about the "best" home in the "worst" area.Which homes should a real estate licensee consider when performing a CMA?homes that were taken off the market (All of these homes should be considered when performing a competitive market analysis.) AssemblageThe act of combining two or more parcels of land into one larger parcel.Principle of Increasing ReturnsThe theory that the added value of an additional feature, addition, repair, etc., is more than the actual cost of the item.An appraisal for the purpose of securing a mortgage from a federally-regulated lender must be performed by a licensed or certified appraiser True (Appraisals for use in connection with any federally related transaction through a federally regulated financial institution can be performed only by real estate appraisers