HPRINCIPLES OF REAL ESTATE II
CHAMPIONS QUESTIONS WITH
COMPLETE SOLUTION
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.
CHAMPIONS QUESTIONS WITH
COMPLETE SOLUTION
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.
