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MLO - CHAPTER 10
Residential Appraisal
| Question | Answer |
|---|---|
| An appraisal is defined as | the appraiser's opinion of value |
| an appraisal that is less than the sales price will generally result in | 1. Termination of the transaction 2. Reduction of the salesprice by the seller to match the appraised value 3. Payment of the difference between the salesprice and appraised value by the buyer/borrower |
| Why do lenders need appraisals? | to ensure that they do not approve loans for more than the property's worth |
| How long is the normal shelf life for appraisals? | four months if older than 4 and less than 12 -- most lenders will accept it as long as the appraiser can issue a re-certification |
| Type of appraisal reviews: | - desk review - field review |
| An independent third-party appraiser will be contracted to review the appraisal report and then actually verify the accuracy of the data, elements, and procedures used by the original appraiser. | field review especially when dealing with high-LTV loans |
| a site's value arises from its | potential or actual use "highest and best use" |
| suggests that the value of a property is equal to the contributory value of each of its component parts. | principle of contribution |
| the notion that value is derived from the anticipation of future benefits | Anticipation |
| The future benefits derived from ownership of real estate include | appreciation, income, and tax benefits |
| According to this principle, the value of a commodity is influenced by the cost of acquiring a substitute or comparable item. | principle of substitution |
| In applying the principle of substitution to real estate valuation, one assumes that buyers, acting rationally, will pay | no more for one property than they would for an equally desirable, comparable property. |
| suggests that value is maximized when there is a reasonable degree of homogeneity or sameness in a neighborhood | principle of conformity |
| Principle of Real Estate: | - highest and best use - principle of contribution - principle of change - principle of anticipation - of substitution - of conformity - of increasing and decreasing returns - of supply and demand - of regression - of competition |
| the most probable price which a property should bring in a competitive & open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus. | market value |
| Ad valorem means | according to value |
| ________ taxes are assessed based upon the assessed value of the property and the current tax rate. | Ad Valorem |
| Appraisers must follow a standard procedure known as the | Uniform Standards of Professional Appraisal Practice (USPAP). |
| Fannie Mae and Freddie Mac have been instrumental in standardizing appraisal reporting through the widespread adoption | of the Uniform Residential Appraisal Report (URAR), which is known as a Fannie Mae Form 1004 or a Freddie Mac Form 70. In the business, the URAR is commonly referred to as simply a “1004 |
| appraisal will contain market value and an analysis of the following 9 categories: | 1. Property & lender info 2. Neighborhood description 3. Site description 4. Improvements to the site 5. Sales Comparison Approach 6. Cost Approach Analysis 7. Income Approach Analysis 8. Reconciliation of values 9. Additional support documents |
| The appraisal describes the property's neighborhood, providing the following info: | - location - built-up - growth - property value -demand/supply -marketing time -one unit housing - percent land use - neighborhood boundaries -neighborhood desc. - market conditions |
| A neighborhood’s level of development is measured with one of four classifications: | (1)“fully developed” means that there is little or no potential for future development; (2) “rapid” usually indicates a hot market; (3) “steady” areas are average; (4) “slow” applies to future potential |
| The appraiser’s determination of whether the property value is (1) increasing, (2) remaining stable, or (3) declining | property values |
| This market indicator estimates whether (1) there is a shortage of marketable properties in the area, (2) there is a balance between the area’s supply and demand, or (3) there is an oversupply of marketable properties in the area | demand/supply |
| The appraiser verifies the area’s listings and sales records to determine how long it is taking to sell properties: (1) under 3 months; (2) between 4-6 months or (3) over 6 months | marketing time |
| An estimate of how the neighborhood’s parcels are currently improved and developed: (1) single-family, (2) properties with 2-4 units, (3) multifamily apartments, (4) commercial, (5) industrial, or (6) vacant. | present land use % |
| The property’s site is described. The site appraisal section provides the following categories of information: | - lot dimension - area - shape -view -zoning class -highest and best use -utilities -offsite improvements - flood zone -typical improvements -adverse conditions |
| The categories of off-site improvements consist of | (1) the street (2) the curb and gutter (3) the sidewalk (4) any street-lights (5) the alley |
| Foundation section must describe the following items as applicable; | (1) slab (2) crawl space, (3) sump pump (4) dampness, (5) settling of the foundation (6) infestation (7) the overall condition and finish of the basement |
| After gathering all necessary data on the neighborhood, site, and improvements, the appraiser is ready to begin a major step in the valuation process: using all three approaches to value. These three methods | 1. Sales Comparison Approach (ALWAYS USED) 2. Cost Approach 3. Income Approach |
| In the _____ ________Approach, the appraiser focuses on recent sales in determining the value of the subject | Sales Comparison |
| The appraiser must select the comparables that result in the | least adjustments |
| the degree to which a comparable is adjusted is a concern. This is reflected in two ways: | - net adjustments -gross adjustments |
| the absolute adjustments made to the comparable, considering those that are positive and negative. In our example, we have two adjustments, one at +$2,500 and the other at -$1,400. | Net Adjustments The net adjustments add up to +$1,100 |
| the sum of all adjustments whether or not they are positive or negative | Gross Adjustments |
| Adjustment Guidelines vary, but many lenders prefer that: | • Any single adjustment not exceed 10% • Net adjustments not exceed 15% • Gross adjustments not exceed 25%. |
| ______ approach to the market value of the property considers how much a new structure of this size and type would currently cost to build. appraiser applies current industry & price estimates for the land, building supplies, and construction costs. | Cost |
| After determining the replacement cost of the structure, the appraiser calculates a value for __________ | depreciation |
| __________ is the reduction in the value of a property from causes such as deterioration or obsolescence. | depreciation |
| Types of Depreciation include: | - physical deterioration - functional obsolescence - external obsolescence |
| is the loss in a property’s value due to daily wear and tear. | physical deterioration |
| Of special interest in a residential appraisal is the age of the improvements. The appraiser is concerned with age in two areas: | - chronological age - effective age |
| The actual age of the property in years. If the house is 20 years old, ithas a _________ age of 20. | chronological |
| The appraiser’s estimate of the house’s age based upon its on-going maintenance and upgrades. | effective age |
| according to HUD, a home has a life expectancy of | 60 years |
| the loss in the desirability of the style, layout, or function of an element of a property over | functional obsolescence |
| refers to the loss in value of a property caused by factors outside the property itself. | external obsolescence |
| appraisers will not use the _________ approach in a typical residential transaction because it applies to income-generating rental property | income |
| This section evaluates the conclusion of the three value-appraising approaches to determine the market value of the property | reconciliation of the value estimates |
| ______________________ is a subdivision that includes individually owned lots together with shared ownership of common facilities such as tennis courts, swimming pools, parks, and greenbelts | Planned Unit Development (PUD) |
| Some of the factors that may cause such ineligibility include the following appraisal findings: | • Economic obsolescence • Major functional obsolescence • Rural property < 25% built up • Buildings are not typical of area • Items that affect the marketability or livability • Any condition that affects the health or safety of an occupant |
| The ________ data approach is used as the best indicator of value for existing properties. | Market Data Approach |
| _______ refers to the loss in the desirability of the style, layout, or function of an element of a property over time | Functional Obsolescence |
| The total net value of all adjustments should not exceed ___ of the comp’s sales price. | market value |
| Types of depreciation include physical deterioration, functional obsolescence, and ______ obsolescence | external |
| The concept of chronological age and effective age is important because of the method used to calculate ____ in residential appraisals. | physical deterioration |
| The total gross value of all adjustments should not exceed ____ of the comp’s sales price | 25% |
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