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Unformatted text preview: Real Estate Exam 2 Material Chapter 8: Valuation Approach Using the Sales Comparison and Cost Approaches CC 8.1 List several types of real estate decisions that often require formal real estate appraisals. o Owners would are contemplating renovations and improvements o A judge attempting to determine the appropriate division of assets in a divorce o Lenders contemplating a mortgage loan on a property o Government officials estimating the costs of acquiring the right-of way to construct roadways o Local tax officials determining the appropriate tax on a property Appraisal: unbiased written estimate of the fair market value of a property usually referred to as the subject property , at a particular time. Appraisal report: is the document the appraiser submits to the client and contains the appraisers final estimate of value, the data which the estimate is based, and the calculations used to arrive at the estimate. Market value: most probably selling price, assuming normal sale conditions Value that a typical (imaginary) participant would place on a property Result of forces of supply and demand Investment value: value a particular investor (specific individual) places on a property Unique expectations of the individual investor, not the market in general Buyers investment value is the MAX that he or she would be willing to pay for a particular property Sellers investment value is the MIN he or she would be willing to accept Transaction prices: prices we observe on sold properties. Different, but related to market and investment value No guarantee that this price is equal to the market value of a property Investment value and market value are linked through the market process that determines transaction prices. CC 8.2 Assume a house is listed for sale for which you would be willing to pay up to $200,000. The seller has put the property on the market with an asking price of $180,000. List some possible reasons why your investment value exceeds that of the seller. Will the price you pay be closer to $200,000 or $180,000? Explain. o An investor may value a property more than market value because individual investors have different expectations regarding the future desirability of a property, different capabilities for obtaining financing, different tax situations, and different return requirements. o The price paid for the home should be closer to $180,000. Although an investor may be willing to pay $200,000, this house and, presumably other close substitutes, are available at $180,000. Although willing, investors should not pay more than market value. The Appraisal Process Uniform Standards of Professional Appraisal Practice (USPAP): required and followed by all states and federal regulatory agencies....
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This note was uploaded on 04/06/2008 for the course REAL ESATE 306 taught by Professor Mccabe during the Fall '08 term at Wisconsin.
- Fall '08