Principles of real estate II (Champions)| 127 questions and answers

Functional obsolescence Refers to the loss in desirability of the style, layout or function of an element of a property over time Sales comparison best indicator of value for existing properties highest and best use the legal use for property that gives the greatest return in money and/or amenities external obsolescence the loss in value of a property caused by factors outside the property itself principle of contribution suggests the value of a property is equal to the sum of the contributory value of each of its components. most important aspect is that cost does not equal value most important aspect of principle of contribution cost does not equal value (for example...swimming pool) principle of change forces acting on a parcel of land are always affecting the value of the land principle of anticipation the purchase price is affected by the expectation of future appeal and benefits principle of substitution the value of a commodity if influenced by the cost of acquiring a substitute or comparable item. principle of conformity value is maximized when there is a reasonable degree of homogeneity in a neighborhood principle of increasing and decreasing returns when the value added by an improvement exceeds the cost...do not over improve. principle of supply and demand when demand is high and supply is short, prices go up - and vice versa principle of regression presence of lower-priced properties in the area will cause a decline in the value of the subject property principle of progression presence of higher-priced properties in the area will cause an increase in the value of the subject property principle of competition the absence of competition will cause prices to increase in the marketplace. Increased competition will bring prices down. characteristics of value DUST; demand, utility, scarcity, transferability market value the most probable pice a property should bring in a competitive and open market under all conditions requisite to a fair sale. types of appraisal reviews desk review and field review` desk review a type of appraisal review. reviews cover a checklist of items as they analyze the appraisal report field review a type of appraisal review. many lenders, especially high LTV loans, will order a field review of the appraisal. Independent third-party appraiser will review the report, then verify the information. limited appraisal a type of appraisal review. some lenders accept this drive-by type of review for low LTV or low risk loans. ad valorem taxes based on the assessed value of the property and the existing tax rate. assessed value value set on the property for tax purposes. never a reliable estimate of market value USPAP standards that have been established by the Appraisal Standards Board of the Appraisal Founation appraisal an appraiser's opinion of value URAR Universal Residential Appraisal Report; Fannie Mae 1004 three approaches to value sales comparison approach, cost approach, income approach chronological age the actual age of the property in years effective age estimate of age based on the condition of the property Gross Rent Multiplier part of income approach, used if there are a lot of rental properties in the area. GRM Gross Rent Multiplier. Sales Price ÷ monthly rent income capitalization used in commercial transactions. income approach the process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life cost approach an estimate of value based on current construction costs, less depreciation, plus land value sales comparison approach estimate of value by examining and comparing actual sales of comparable properties IRV formula part of income capitalization. Value, Income, Return. various equations can calculate what investor is looking for reconciliation final step in the appraisal process, in which the appraiser weights the estimates of value from sales comps, cost and income approaches to arrive at a final estimate of market value of the subject property.