Texas Principles of Real Estate II Test

Profit The result of selling something for more than what it cost to purchase it Profit Margin is the percentage of selling price that is turned into profit. Interest the amount paid in return for the use of money. Types of Interest Calculations Simple Add-on Compound Add-on Interest entails computing the interest on the total amount of the loan for the entire loan term. Then this amount of interest is added to the total principal amount before the monthly payments are calculated. Almost doubles the interest rate. Compound Interest Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods. At the beginning of a new interest period all accrued interest is added to the principal forming a new principal figure. Discount Points Charges designed to offset losses the lender might suffer when selling mortgage to secondary mortgage market. Are a means of raising the effective interest rate on a loan. 1/8 for each discount point. Loan To Value Ration The relationship between a properties purchase price and it's loan amount. Appraisal Process Steps 1. Define problem, and scope of work 2. Collect, Record, and Verify required date 3. Determine highest and best use 4. Estimate land value 5. Use all three approaches to estimate value 6. Reconcile estimate values to determine final value estimate. Cost Approach Mostly used for special use properties like government structures, marinas, or newer properties that haven't suffered depreciation yet. Appraiser estimates a properties value by adding the land to the depreciated value of any improvements to the property. Most reliable for recently built properties, since appraiser can get costs of actual development and construction Income Approach used by appraisers to value properties that earn income (offices, warehouses, apartments, malls) using reliable financial data that is available for recent sales of similar income properties in a given market. Depends heavily on income and expense data for the property. Also assumes principle of substitution. Investors will use this approach to determine how much they will pay for a property. Method is often difficult to determine appropriate capitalization rate, and hard to find info on income and expenses.