Basic Appraisal Principles Study Guide

Basic Appraisal Principles Study Guide 4 factors of value - ANS - Utility - Scarcity - Desire - Effective Purchasing Power 4 Factors of Production - ANS - Capital - Entrepreneurial Coordination - Land - Labor Forces that influence real property markets - ANS - Social Forces - Economic circumstances - Governmental controls and regulations - Environmental Conditions Life Cycle of a Market Area - ANS - Growth - Stability - Decline - Revitalization Bundle of Rights - ANS - Right to sell - Right to lease - Right to occupy - Right to mortgage - Right to give it away 4 Powers of Government - ANS - Police Power - Eminent domain - Taxation - Escheat 4 Forms of Ownership - ANS - Community Property - Joint Tenancy - Tenancy by the entirety - Tenancy in common community property - ANS System of ownership; each spouse has an equal interest in property acquired during marriage: separate property is that acquired before marriage USPAP - ANS current standards of the appraisal profession utility - ANS the ability of a product to satify a human want, need or desire. scarcity - ANS the present or anticipated under supply of an item relative to the demand for it desire - ANS a purchasers wish for an item to satisfy human needs effective purchasing power - ANS the ability of an individual or group to participate in a market Market Value - ANS 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 - ANS 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 - ANS All tangible and intangible assists of an established and operating business with an indefinite life. Anticipation - ANS the perception that value is created by the expectation of benefits to be derived in the future Change - ANS the result of the cause and effect relationship among the forces that influence real property value Supply and Demand - ANS 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 - ANS 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 - ANS 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 - ANS decreasing marginal utility, contribution, surplus productivity, and conformity explain how the integration of property components affects property value. Balance - ANS the principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium Contribution - ANS 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 - ANS 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 - ANS In appraisal, the concept that the value of an inferior property is enhanced by its association with better properties of the same type. Regression - ANS 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: - ANS - Social forces - Economic circumstances - Governmental controls and regulations - Environmental conditions Disaggregation - ANS grouping properties together based on similar attributes or characteristics. Growth - ANS a period during which the market area gains public favor and acceptance Stability - ANS a period of equilibrium without marked gains or losses decline - ANS a period of diminishing demand Revitalization - ANS a period of renewal, redevelopment, modernization, and increasing demand. Central business district (CBD) - ANS 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 - ANS real estate is normally bought with a combination of equity capital and medium to long term debt funds. Mortgage - ANS 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 - ANS a legal instrument similar to a mortgage, which, when executed and delivered, conveys or transfers property title to a trustee. land contract - ANS 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 - ANS the ownership claim on property. debt - ANS 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 - ANS 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 - ANS The fullest freehold estate that can exist in real property easement - ANS 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 - ANS the right of government to raise revenue through assessments on valuable goods, products, and rights. eminent domain - ANS the right government to take private property for public use upon the payment of just compensation. police power - ANS the right of government through which property is regulated to protect public safety, health, morals, and general welfare. escheat - ANS 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 - ANS the holding of property by any form of title joint tenancy - ANS joint ownership by two or more persons with the right of survivor-ship. tenancy by the entirety - ANS an estate held by husband and wife in which neither has a disposable interest in the property during the lifetime of the other, except through joint tenancy in common - ANS estate held by two or more persons, each of whom has an undivided interest. In this estate the undivided interests may or may not be equally shared by the holders and there is NO right of survivorship. condo ownership - ANS a form of fee ownership of separate units or portions of multi-unit buildings that provides for formal filing and recording of a divided interest in real property. coop ownership - ANS a form of ownership in which each owner of stock in a cooperative apartment building or housing corporation receives a proprietary lease on a specific apartment and is obligated to pay a monthly maintenance charge that represents the proportionate share of operating expenses and debt service on the undying mortgage, which is paid by the corporation. This proportionate share is based on the proportion of the total stock owned. timesharing - ANS limited ownership interests in, or the rights of use and occupancy of, residential apartments or hotel rooms. There are two forms of timesharing; fee timeshares and nonfee timeshares, fee timeshares may be based on timeshare ownership or interval ownership. There are three types of nonfee timeshares: a prepaid lease arrangement, a vacation license, and a club membership. scope of work - ANS the type and extent of research and analyses in an assignment. sales comparison approach - ANS an appraiser produces a value indication by comparing the subject property with similar properties. Geographic Information Systems (GIS - ANS an organized collection of computer hardware, software, geographic data, and personnel delighted to efficiently capture, store, update, manipulate, analyze, and display all forms of geographically referenced information. market analysis - ANS a process for examining the demand for and supply of a property type and the geographic market area for that property type. This process is sometimes referred to as a use in search of a site. marketability analysis - ANS a process that investigates how a particular piece of property will be absorbed, sold, or leased under current or anticipated market conditions; includes a market study or analysis of the general call of property being studied. This process is sometimes referred to as a site in search of a use. economic base analysis - ANS a survey of the industries and businesses that generate employment and income in a community as well as the rate of population growth and levels of income, both of which are functions of employment. Economic base analysis is used to forecast the level and composition of further economic activity. Specifically the relationship between basic employment and non-basic employment is studied to predict population, income, or other variables that affect real estate values or land utilization. market study - ANS a macroeconomic analysis that examines the general market conditions of supply, demand, and pricing or the demographics of demand for a specific area or property type. marketability study - ANS examines the marketability of a given property or class of properties, usually focusing on the market segments in which the property is likely to generate demand. Feasibility analysis - ANS a study of the cost benefit relationship of an economic endeavor. 3 types of depreciation - ANS - physical - functional - external 3 approaches to estimating value - ANS - cost - market (sales comparison) - income Highest & Best Use - ANS Comparing the indications of the analysis performed to indicate the greatest value fee simple - ANS the greatest estate (ownership) that one can have in real property because it is transferable, inheritable, and of indefinite duration, with no conditions on title. lot and block system - ANS a type of legal description use for plattered property. the description states only the property's lot number and block number in a particular subdivision. to find the exact location, a plat map must be consulted. metes and bounds system - ANS a type of legal description that starts at an easily identifiable point of being (pob), then describes the property's boundaries in terms of courses (compass directions) and distances, returning point of beginning. natural attachments - ANS are plants growing on the land. weather naturally occurring or planted by people,are essentially treated the same. plat map - ANS a detailed survey map of a subdivision. Unities of Ownership - ANS - Possession - Interest - Time - Title PUD - ANS Planned Uni Development Condominium - ANS Ownership of a space in a building without ownership of the land its on. nonconforming use - ANS When land doesn't conform to zoning laws but is grandfathered variances - ANS Grant permission to a property owner by the zoning authority allowing deviation from strict zoning laws subdivision regulations - ANS regulations on land before it is subdivided superfund - ANS huge gov. tax fund used to clean up hazardous waste in the environmental (i.e. oil spill in wetlands,etc...) when no ne accepts responsibility. under CERCLA CERCLA - ANS Comprehensive Environmental Response, Compensation, and Liability Act (addresses what to do with closed or abandoned waste sites) see super fund Nuisance - ANS anything from OUTSIDE property boundaries that interferes with owners quite enjoyment Typography - ANS Contour of the land Stigmatized Properties - ANS Property held undesirable by most people because of a past event or condition Appraisal Step 1 - ANS Identify the problem Appraisal Step 2 - ANS Scope Of Work Command Market - ANS Gov. or central authority make all decisions about production and distribution. hypothetical condition - ANS knows to be false extraordinary assumption - ANS reasonable belief by appraiser about something he or she is uncertain about and cannot prove (without dismantling a physical structure) community property - ANS acquired before marriage separate property - ANS acquired after marriage workfile - ANS Preserves evidence of the appraiser's observance of USPAP Basic Appraisal Principles Study Guide 4 factors of value - ANS - Utility - Scarcity - Desire - Effective Purchasing Power 4 Factors of Production - ANS - Capital - Entrepreneurial Coordination - Land - Labor Forces that influence real property markets - ANS - Social Forces - Economic circumstances - Governmental controls and regulations - Environmental Conditions Life Cycle of a Market Area - ANS - Growth - Stability - Decline - Revitalization Bundle of Rights - ANS - Right to sell - Right to lease - Right to occupy - Right to mortgage - Right to give it away 4 Powers of Government - ANS - Police Power - Eminent domain - Taxation - Escheat 4 Forms of Ownership - ANS - Community Property - Joint Tenancy - Tenancy by the entirety - Tenancy in common community property - ANS System of ownership; each spouse has an equal interest in property acquired during marriage: separate property is that acquired before marriage USPAP - ANS current standards of the appraisal profession utility - ANS the ability of a product to satify a human want, need or desire. scarcity - ANS the present or anticipated under supply of an item relative to the demand for it desire - ANS a purchasers wish for an item to satisfy human needs effective purchasing power - ANS the ability of an individual or group to participate in a market Market Value - ANS 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 - ANS 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 - ANS All tangible and intangible assists of an established and operating business with an indefinite life. Anticipation - ANS the perception that value is created by the expectation of benefits to be derived in the future Change - ANS the result of the cause and effect relationship among the forces that influence real property value Supply and Demand - ANS 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 - ANS 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 - ANS 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 - ANS decreasing marginal utility, contribution, surplus productivity, and conformity explain how the integration of property components affects property value. Balance - ANS the principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium Contribution - ANS 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 - ANS 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 - ANS In appraisal, the concept that the value of an inferior property is enhanced by its association with better properties of the same type. Regression - ANS 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: - ANS - Social forces - Economic circumstances - Governmental controls and regulations - Environmental conditions Disaggregation - ANS grouping properties together based on similar attributes or characteristics. Growth - ANS a period during which the market area gains public favor and acceptance Stability - ANS a period of equilibrium without marked gains or losses decline - ANS a period of diminishing demand Revitalization - ANS a period of renewal, redevelopment, modernization, and increasing demand. Central business district (CBD) - ANS 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 - ANS real estate is normally bought with a combination of equity capital and medium to long term debt funds. Mortgage - ANS 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 - ANS a legal instrument similar to a mortgage, which, when executed and delivered, conveys or transfers property title to a trustee. land contract - ANS 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 - ANS the ownership claim on property. debt - ANS 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 - ANS 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 - ANS The fullest freehold estate that can exist in real property easement - ANS 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 - ANS the right of government to raise revenue through assessments on valuable goods, products, and rights. eminent domain - ANS the right government to take private property for public use upon the payment of just compensation. police power - ANS the right of government through which property is regulated to protect public safety, health, morals, and general welfare. escheat - ANS 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 - ANS the holding of property by any form of title joint tenancy - ANS joint ownership by two or more persons with the right of survivor-ship. tenancy by the entirety - ANS an estate held by husband and wife in which neither has a disposable interest in the property during the lifetime of the other, except through joint tenancy in common - ANS estate held by two or more persons, each of whom has an undivided interest. In this estate the undivided interests may or may not be equally shared by the holders and there is NO right of survivorship. condo ownership - ANS a form of fee ownership of separate units or portions of multi-unit buildings that provides for formal filing and recording of a divided interest in real property. coop ownership - ANS a form of ownership in which each owner of stock in a cooperative apartment building or housing corporation receives a proprietary lease on a specific apartment and is obligated to pay a monthly maintenance charge that represents the proportionate share of operating expenses and debt service on the undying mortgage, which is paid by the corporation. This proportionate share is based on the proportion of the total stock owned. timesharing - ANS limited ownership interests in, or the rights of use and occupancy of, residential apartments or hotel rooms. There are two forms of timesharing; fee timeshares and nonfee timeshares, fee timeshares may be based on timeshare ownership or interval ownership. There are three types of nonfee timeshares: a prepaid lease arrangement, a vacation license, and a club membership. scope of work - ANS the type and extent of research and analyses in an assignment. sales comparison approach - ANS an appraiser produces a value indication by comparing the subject property with similar properties. Geographic Information Systems (GIS - ANS an organized collection of computer hardware, software, geographic data, and personnel delighted to efficiently capture, store, update, manipulate, analyze, and display all forms of geographically referenced information. market analysis - ANS a process for examining the demand for and supply of a property type and the geographic market area for that property type. This process is sometimes referred to as a use in search of a site. marketability analysis - ANS a process that investigates how a particular piece of property will be absorbed, sold, or leased under current or anticipated market conditions; includes a market study or analysis of the general call of property being studied. This process is sometimes referred to as a site in search of a use. economic base analysis - ANS a survey of the industries and businesses that generate employment and income in a community as well as the rate of population growth and levels of income, both of which are functions of employment. Economic base analysis is used to forecast the level and composition of further economic activity. Specifically the relationship between basic employment and non-basic employment is studied to predict population, income, or other variables that affect real estate values or land utilization. market study - ANS a macroeconomic analysis that examines the general market conditions of supply, demand, and pricing or the demographics of demand for a specific area or property type. marketability study - ANS examines the marketability of a given property or class of properties, usually focusing on the market segments in which the property is likely to generate demand. Feasibility analysis - ANS a study of the cost benefit relationship of an economic endeavor. 3 types of depreciation - ANS - physical - functional - external 3 approaches to estimating value - ANS - cost - market (sales comparison) - income Highest & Best Use - ANS Comparing the indications of the analysis performed to indicate the greatest value fee simple - ANS the greatest estate (ownership) that one can have in real property because it is transferable, inheritable, and of indefinite duration, with no conditions on title. lot and block system - ANS a type of legal description use for plattered property. the description states only the property's lot number and block number in a particular subdivision. to find the exact location, a plat map must be consulted. metes and bounds system - ANS a type of legal description that starts at an easily identifiable point of being (pob), then describes the property's boundaries in terms of courses (compass directions) and distances, returning point of beginning. natural attachments - ANS are plants growing on the land. weather naturally occurring or planted by people,are essentially treated the same. plat map - ANS a detailed survey map of a subdivision. Unities of Ownership - ANS - Possession - Interest - Time - Title PUD - ANS Planned Uni Development Condominium - ANS Ownership of a space in a building without ownership of the land its on. nonconforming use - ANS When land doesn't conform to zoning laws but is grandfathered variances - ANS Grant permission to a property owner by the zoning authority allowing deviation from strict zoning laws subdivision regulations - ANS regulations on land before it is subdivided superfund - ANS huge gov. tax fund used to clean up hazardous waste in the environmental (i.e. oil spill in wetlands,etc...) when no ne accepts responsibility. under CERCLA CERCLA - ANS Comprehensive Environmental Response, Compensation, and Liability Act (addresses what to do with closed or abandoned waste sites) see super fund Nuisance - ANS anything from OUTSIDE property boundaries that interferes with owners quite enjoyment Typography - ANS Contour of the land Stigmatized Properties - ANS Property held undesirable by most people because of a past event or condition Appraisal Step 1 - ANS Identify the problem Appraisal Step 2 - ANS Scope Of Work Command Market - ANS Gov. or central authority make all decisions about production and distribution. hypothetical condition - ANS knows to be false extraordinary assumption - ANS reasonable belief by appraiser about something he or she is uncertain about and cannot prove (without dismantling a physical structure) community property - ANS acquired before marriage separate property - ANS acquired after marriage workfile - ANS Preserves evidence of the appraiser's observance of USPAP