Basic Appraisal Principles Study Guide with complete solutions

4 factors of value - Utility - Scarcity - Desire - Effective Purchasing Power 4 Factors of Production - Capital - Entrepreneurial Coordination - Land - Labor Forces that influence real property markets - Social Forces - Economic circumstances - Governmental controls and regulations - Environmental Conditions Life Cycle of a Market Area - Growth - Stability - Decline - Revitalization Bundle of Rights - Right to sell - Right to lease - Right to occupy - Right to mortgage - Right to give it away 4 Powers of Government - Police Power - Eminent domain - Taxation - Escheat 4 Forms of Ownership - Community Property - Joint Tenancy - Tenancy by the entirety - Tenancy in common community property System of ownership; each spouse has an equal interest in property acquired during marriage: separate property is that acquired before marriage USPAP current standards of the appraisal profession utility the ability of a product to satify a human want, need or desire. scarcity the present or anticipated under supply of an item relative to the demand for it desire a purchasers wish for an item to satisfy human needs effective purchasing power the ability of an individual or group to participate in a market Market Value the most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress. investment value the specific value of a property to a particular investor or class of investors based on individual investment requirements: distinguished from market value, which is impersonal and detached. Going Concern All tangible and intangible assists of an established and operating business with an indefinite life. Anticipation the perception that value is created by the expectation of benefits to be derived in the future Change the result of the cause and effect relationship among the forces that influence real property value Supply and Demand the principle of supply and demand states that the price of real property varies directly, but not necessarily proportionally with demand and inversely but not necessarily proportionally, with supply. Competition between purchasers or tenants, the interactive efforts of two or more potential purchasers or tenants to make a sale or secure a lease; between sellers or landlord the interactive efforts of two or more potential sellers or landlords to complete a sale or lease; among competitive properties, the level of productivity and amenities or benefits characteristic of each property considering the advantage our or disadvantageous position of the property relative to the competitors. Substitution the appraisal principle that states that when several similar or commensurate commodities, goods or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the cost and sales comparison approaches are based. principle of balance decreasing marginal utility, contribution, surplus productivity, and conformity explain how the integration of property components affects property value. Balance the principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium Contribution the concept that the value of a particular component is measured in terms of its contribution to the value of the whole property or as the amount that its absence would detract from the value of the whole. Conformity the appraisal principal that real property value is created and sustained when the characteristics of a property conform to the demands of its market. Progression In appraisal, the concept that the value of an inferior property is enhanced by its association with better properties of the same type. Regression in appraisal, the concept that the value of a superior property is adversely affected by its association with an inferior property of the same type. Forces that influence real property markets: - Social forces - Economic circumstances - Governmental controls and regulations - Environmental conditions Disaggregation grouping properties together based on similar attributes or characteristics. Growth a period during which the market area gains public favor and acceptance Stability a period of equilibrium without marked gains or losses decline a period of diminishing demand Revitalization a period of renewal, redevelopment, modernization, and increasing demand. Central business district (CBD) the core or downtown area of a city where the major retail, financial, governmental, professional, recreational, and service activities of the community are concentrated. Mortgage Money real estate is normally bought with a combination of equity capital and medium to long term debt funds. Mortgage a pledge of a described property interest as collateral or security for the repayment of a loan under certain terms and conditions. deed of trust a legal instrument similar to a mortgage, which, when executed and delivered, conveys or transfers property title to a trustee. land contract a contract in which a purchaser of real estate agrees to pay a small portion of the purchase price when the contract is signed and additional sums, at intervals and in amounts specified in the contract, until the total purchase price is paid and the seller delivers the deed; used primarily to protect the sellers interest in the unpaid balance because foreclosure can be exercised more quickly than it could d be under a mortgage, also called a contact for deed or installment (sale) contract. equity the ownership claim on property. debt one of two characteristics types of investment, the other being equity. The debt investor expects a priority claim on investment earnings and looks for security in the form of a lien on the assets involved. secondary mortgage market a market created by government and private agencies for the purchase and sale of existing mortgages, which provides greater liquidity for mortgages. Fannie Mae, Freddie Mac, and Ginny Mae are the principal operators in the secondary mortgage market. Fee Simple Absolute The fullest freehold estate that can exist in real property easement an interest in real property that transfers use, buy not ownership, of a portion of an owner's property. Access or right of way easements may be acquired by private parties or public utilities. Governments accept conservation, open space, and preservation easements on private property. taxation the right of government to raise revenue through assessments on valuable goods, products, and rights. eminent domain the right government to take private property for public use upon the payment of just compensation. police power the right of government through which property is regulated to protect public safety, health, morals, and general welfare. escheat the right of government that gives the state titular ownership of a property when its owner dies without a will or any ascertainable heirs. tenancy the holding of property by any form of title joint tenancy joint ownership by two or more persons with the right of survivor-ship.