RIL 266 Review Exam 3 - CHAPTER 18: Real Estate Appraisal...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 18: Real Estate Appraisal I. Market Value—highest price in terms of money that a property will bring if: A. Payment is made in cash or equivalent B. Property is exposed on the open market for a reasonable length of time C. Buyer and seller are fully informed as to market conditions and the uses of property D. Neither is under abnormal pressure to conclude transaction E. Seller is capable of conveying marketable title II. Market Comparison Approach—based on recent sales of similar properties A. Comparables—3 to 5 properties similar to the subject property that have sold recently B. Adjustments—made for price changes since each comparable was sold, as well as differences in physical features, amenities, and financial terms (ex. House size, garage, patio, building age, condition, quality, landscaping, etc.) 1. Adjusted Market Price—adjustments either added or subtracted from sale price C. Correlation Process—gives the appraiser the opportunity to assign more weight to the more similar comparables and less to the others 1. Indicated Value—adjusted market price of each comparable multiplied by its weighing factor D. Competitive Market Analysis (CMA)—variation of market comparison approach; value can be estimated not only by looking at similar homes that have sold recently, but also by taking into account homes presently on the market plus homes that were listed and did not sell E. Gross Rent Multiplier (GRM)—number that is multiplied by a property’s gross rents to produce an estimate of the property’s worth; economic comparison factor that relates the gross rent a property can produce to its purchase price 1. GRM = sales price divided by gross annual rents III. Cost Approach—Land value plus current construction costs minus depreciation (for building rarely on the market, school, fire house, etc.) A. Estimate the value of the land B. Estimate new construction cost for a similar building 1. Reproduction Cost—cost at today’s prices of constructing an exact replica of the subject improvements using same/similar materials
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2. Replacement Cost—cost for an improvement having the same or equivalent usefulness as the subject property (more useful) 3. Square-foot method—based on finding a newly constructed building that is similar to the subject building in size, type of occupancy, design, materials, and construction quality; cost converted to cost per square foot by dividing current construction cost by number of square feet (most used) 4. Cost handbook—pictures, appraiser finds one similar C. Estimate accrued depreciation (and deduct from the estimate of new construction cost) 1. Physical depreciation—wear and tear through use (or nature, neglect, or vandalism) 2. Functional obsolescence—results from outmoded equipment, faulty or outdated design, inadequate structural facilities, over-adequate structural facilities 3. Economic obsolescence—loss of value due to external forces or events D. Sometimes, add an estimate of entrepreneurial profit
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/27/2011 for the course FINANCE 266 taught by Professor Owens during the Spring '10 term at Missouri State University-Springfield.

Page1 / 10

RIL 266 Review Exam 3 - CHAPTER 18: Real Estate Appraisal...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online