IAAO - Course 101 Questions with correct Answers

Discover List Value taxable property - Answer- Basic appraiser responsibilities Standard 6: Scope of Work - Answer- USPAP standard for appraisal practice ad valorem tax - Answer- Property tax based on value Tax Rate (formula) - Answer- Budget (minus other revenue) / Assessed Value of Jurisdiction Tax Bill (formula) - Answer- Tax Rate x Ind. Property Assessed Value Assessed Value (AV) formula - Answer- Assessment Ratio (AR) x Market Value (MV) Property Tax Revenue (formula) - Answer- Budget minus other revenue ETR (Effective Tax Rate) - Answer- Reflects the ratio between the current tax bill and the property value. ETR formula - Answer- A (assessment ratio) x T (tax rate) Real Property - Answer- Interests, benefits, and rights associated with real estate ownership Real Estate - Answer- land and anything that is permanently attached to it Property Classifications - Answer- Residential Commercial Industrial Agricultural Personal Property - Answer- Movable items not permanently affixed; that which is to real is personal; valued by exception Ownership Bundle of Rights - SLUGER (fee simple ownership) - Answer- S-Sell L-Lease U-Use G-Give away E-Enter or leave R-Refuse Gov't Restrictions to the Bundle of Rights - PETE - Answer- Police Power Eminent Domain Taxation Escheat (revert to state due to non-pymt of taxes, etc.) Private Encumbrances on Property - Answer- HOA fees Mortgages Easements and ROW Liens & judgments Leases Fee Simple - Answer- Ownership of all legal rights to property; highest and greatest type of ownership interest (title) that can be held in real property. For Property to have Value, it must have... - Answer- Utility Scarcity Desirability Effective Purchasing Power Value (def.) - Answer- The present worth of future benefits arising from the ownership of real property. Monetary worth of property to buyers and sellers. Value in Use - Answer- Value of a property for a specific use Value in Exchange - Answer- the amount an informed buyer would offer in exchange for a property under given market conditions Cost (def.) - Answer- Sacrifice made to acquire property Price (def.) - Answer- Amount asked, offered, or paid for a property Market Value - Answer- Probable price which a property would bring in a competitive and open market; type of value usually estimated by the appraiser Appraisal - Answer- Opinion of value, usually in writing, of described property as of a given date Valuation - Answer- Process of estimating the value of property as of a given date. Evaluation - Answer- Study of nature, quality of a parcel of real property in which a value estimate is not necessarily required. Highest and Best Use - Answer- Market value of vacant land depends on potential use rather than current use alone. Criteria for Highest and Best Use (in order) - Answer- Legally Permissible Physically Possible Financially Feasible Maximally Productive The Appraisal Process (7-steps) - Answer- Definition of the problem Scope of Work Survey & Planning Data Collection/Analysis Highest & Best Use Application of data and determine which approach is best (cost, sales, income) Final Value Estimate Steps in Cost Approach - Answer- (1) Estimate replacement or reproduction (2) Deduct depreciation (3) Add in land value Steps in Sales Comparison Approach - Answer- 1. Identify elements of comparison and value adjustment 2. Select comparable sales 3. Adjust comparable sale prices to approximate subject 4. Reconcile adjusted sale prices; obtain indicated value of subject Trends Affecting Property Value - Answer- Economy Price levels/building costs Business cycles Population Purchasing power Financing Property taxes Four Factors of Value (PEGS) - Answer- P-Physical E-Economic G-Governmental S-Social Situs address - Answer- Taxable location of personal property The two types of highest and best use analysis are: - Answer- As if vacant & As if improved Life Cycle of a Neighborhood - Answer- Grow Stabilize Decline Revitalization Elements that Contribute to a change in Demand - Answer- Consumer preference Consumer income Price & related commodities Expectations Price of Commodity Definition of Problem - Answer- Step in appraisal process - Determining the identity of the property to be appraised Three Types of Boundaries to delineate neighborhoods - Answer- Natural Political Man-made Economic Factor - Answer- The life cycle of a neighborhood that can be extended or shortened by this factor Neighborhood (def.) - Answer- Area of complementary land uses in which all properties are similarly influenced by the four forces affecting value. Governmental factor - Answer- Municipal services, planning and zoning are examples of this factor that effect neighborhoods. Four Elements of Supply - Answer- Cost of production Price of Goods Entrepreneur's expectations # of Sellers Site Data - Answer- Under this step in the appraisal process that is termed data collection and analysis. Cadastral Map - Answer- a map which shows property boundaries displays size and location of parcels and major physical features. Two Computerized Mapping Systems - Answer- Computer Assisted Drafting (CAD) Geographic Information Systems (GIS) Six Characteristics for Parcel Identification System - Answer- Uniqueness Permanence Simplicity Ease of Maintenance Flexibility Reference to geographic location Metes and Bounds - Answer- A method of land description which involves identifying distances and directions and makes use of both the physical boundaries and measurements of the land. Public Land Survey System - Answer- A system used to divide public domain lands in the United States in which land is divided into 6-mile square townships and subdivided into sections, portions of sections, or irregular lots. Also referred to as Rectangular Survey System. Township - Answer- a square 6 miles on each side Section (def.) - Answer- Area of township divided into 36, one-mile squares Section (size) - Answer- 1-square mile 640 acres 43, 560 feet Direction to LOCATE section on PLSS map - Answer- Right to Left Direction to WRITE & SOLVE acres on PLSS map - Answer- Left to Right Five Attributes of Land (PUFFS) - Answer- Permanent & durable Unique Finite supply Functional Stationary Unimproved land - Answer- Raw land that contains no structures Improved land - Answer- Land on which buildings have not yet been constructed, but which contains utilities and streets. Site - Answer- Land that includes both improvements TO land and improvements ON land Off-site improvements - Answer- Land, streets, sidewalks, curbing, etc. On-site improvements - Answer- Grading, paving, driveways, landscaping, sewers, utility hookups Appraisal principles important to land valuation - Answer- Supply and demand Surplus productivity Change Anticipation Site/Land Data Analysis - Answer- Stratification (sorting by market area) Plotting Graphic analysis Trends and Factors Site-Specific data Sales Comparison Method - Answer- Compares the subject property with comparable vacant parcels that have recently sold; Preferred method of valuing land. Sales Comparison steps: - Answer- Market research - obtain sales information Verification of sales Selection of appropriate units of comparison Comparison of sold properties with subject property Value (reconciliation) Basic Units of Comparison - Answer- Front foot Square foot Acre Size Units buildable Adjustments in Sales Comparison - Answer- Made to the SALE(Comp) property - not the subject Inferior = Increase adjustment Superior = Subtract adjustment Best Fit comparison - Answer- The property (sale) with the fewest number of adjustments Allocation Method - Answer- When a portion of the total property value is assigned to the site; Land to Improvement ratio is used - LAND always = 1 part ANTICIPATED USE OR DEVELOPMENT METHOD - Answer- Used primarily to value land in transition form Ag use to residential or commercial use, when sales data are insufficient. Six Methods of Land Valuation - Answer- Sales Allocation Abstraction Anticipated Capitalization of Ground rent Land Residual capitalization Abstraction Valuing Method - Answer- Valuing land that subtracts the depreciated value of the improvements from the sale price. 1" = 200' - Answer- Map scale for suburban areas and small towns 1' = 400' - Answer- Map scale for rural areas Parcel Identifier - Answer- The property account number, linking ownership records, tax maps, and assessment records Direct Sales Comparison Method - Answer- Method of land valuation compares the property being appraised to comparable vacant parcels that have recently sold Units of Comparison - Answer- Front foot Square foot Acres Abstraction Method - Answer- Subtracts the deprecated value of the improvements from the sale price. 1:4 Land to building ratio What percent of the value is land? - Answer- 20% Substitution Principle - Answer- The cost approach is based primarily on this principle, which states an informed buyer will not pay more to build a property than the cost of a similar property with equal utility. Hard Costs (direct) - Answer- Costs that occur on the construction site. The first step in the cost approach is ________________________________________. - Answer- Estimate the land value as-if vacant for development. Soft Costs (indirect) - Answer- Fees, insurance and title expenses are called this. Reproduction Cost - Answer- Cost of producing an exact replica of a building or improvement Replacement Cost - Answer- Cost of producing a building or improvement using modern methods and materials with the same utility. Horizontal Costs - Answer- Components such as the floor or roof and expressed in square feet Comparative Unit (square foot) - Answer- Easiest, fastest and most widely used method of estimating cost. Desirable features of a cost manual are: - Answer- Applicable to most structure types Based on actual costs Suitable for computerization Depreciation - Answer- Difference between the market value of an improvement and its cost at the time of appraisal. Five Methods of Measuring Depreciation - Answer- Sales Comparison Capitalization of Income Economic age-life Modified economic age-life Observed condition (breakdown) - most detailed Cost to Cure - Answer- How Curable physical deterioration is measured. Functional Obsolescence - Answer- Loss in value due to: Deficiency - something missing Modernization - some present but good enough Super-adequacy - Something is too much; extra External Obsolescence - Answer- Loss in value resulting from a decrease in utility and desirability caused by factors outside the property's boundaries. Age-life method - Answer- Incurable physical deterioration is measured by this. Incurable Functional obsolescence - Answer- If the cost to cure a functional deficiency within a residence EXCEEDS the increase in value added to the property. Curable Physical Deterioration - Answer- Cost to Cure; a reduction in a property's value resulting from a decline in physical condition; repairs that are physically possible and economically feasible and will result in an increase in appraised value. Ex: Roof replacement, painting Incurable Physical Deterioration (short-lived) - Answer- Need to measure depreciation; Items not ready to be replaced but will probably have to be replaced in the foreseeable future. Incurable Physical Deterioration (long-lived) - Answer- Measured by estimating the age-life ratio, using the effective age and economic life, and applying it to al remaining components of cost that have not already been treated for physical deterioration; considered BONES of the building. Curable - Answer- You will make a return on your investment if you fix it. Incurable - Answer- You will lose money if you fix it; no return on investment. GRM - Answer- Gross Rent Multiplier GIM - Answer- Gross Income Multiplier GIM (formula) - Answer- Sale Price / Gross Annual Income; used for CRE and apartments GRM (formula) - Answer- Sale Price / Gross Monthly Rent; used for Res. rental properties Principle of Substitution - Answer- Value of a property tends to be set by the price that would be paid to acquire a property of SIMILAR utility and desirability. Principle of Contribution - Answer- Underlying principle in the ADJUSTMENT process in the sales comparison approach. Balance - Answer- The relationship between a property and its environment must be in __________________ for a property to reflect its optimum market value. Advantage of Sales Comparison Apprach - Answer- Reflects the actions of buyers and sellers in the market. Price per SF or Total property price - Answer- Unit of comparison that would be applicable to a single-family residential property. Price per acre - Answer- Unit of comparison that would be applicable to agricultural farmland or larger rural residential tracts. Order of Adjustments in Sales Comparison approach - Answer- Financing Market conditions (time of sale) Location & other characteristics Depreciated Cost - Answer- Method of determining adjustments in the sales comparison approach that cannot be used to determine market condition. Five Items of Defining the Appraisal problem - Answer- Identify the property Determine the property rights to be appraised Define the purpose and function Specify the ate of appraisal Define the type of value Equilibrium - Answer- When four forces (physical, governmental, social, economic) are in balance. Paired Sales Analysis - Answer- Requires the sale properties to be identical in all attributes except the one being measured (or adjustments have been made for any differences). Advantages of Sales Comparison Approach - Answer- Reflects the actions of the marketplace Most applicable when sufficient sales data are available. Disadvantages of Sales Comparison Approach - Answer- Not reliable in market where limited sales are available. Can't be applied to value special-purpose or one of a kind properties.