Principles of Real Estate II Flashcards

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Questions and Answers

What is an appraisal?

The capacity to satisfy human needs and desires

The act or process of developing an opinion of value (correct)

The most probable price a property should bring

A finite supply

What does 'value' refer to in the context of real estate?

Monetary worth based on desirability

Define effective demand.

The need or desire for possession or ownership backed up by the financial means to satisfy that need.

What is utility in real estate?

The capacity to satisfy human needs and desires. Signup and view all the answers

What does scarcity mean in the context of real estate?

A finite supply. Signup and view all the answers

What does transferability refer to in real estate?

The relative ease with which ownership rights are transferred from one person to another. Signup and view all the answers

Define market value.

The most probable price a property should bring. Signup and view all the answers

What is market price?

What a property actually sells for. Signup and view all the answers

What is cost in real estate terms?

The original capital outlay for land, labor, materials, and profit. Signup and view all the answers

What are the basic principles of value?

Supply and Demand Signup and view all the answers

The highest and best use of a property must be ___, physically possible, and financially feasible.

legal Signup and view all the answers

The principle of substitution states that a property's maximum value is determined by its own unique features.

False Signup and view all the answers

Describe the principle of supply and demand in real estate.

The value of a property will increase if the supply decreases and the demand either increases or remains consistent. Signup and view all the answers

Explain the principle of conformity.

Maximum value is realized if the use of land conforms to existing neighborhood standards. Signup and view all the answers

What are externalities in real estate?

Influences outside a property that may have a positive or negative effect on its value. Signup and view all the answers

What does anticipation mean in the context of property value?

Value can increase or decrease in anticipation of some future benefit or detriment affecting the property. Signup and view all the answers

Define the law of increasing returns.

Improvements to land and structures produce an increase in income or value as long as the money spent is justified. Signup and view all the answers

What is the principle of plottage value?

The increased utility and value from combining adjacent lots into one larger lot. Signup and view all the answers

Explain the concept of contribution in property valuation.

The value of any component is measured by the amount it contributes to the value of the whole. Signup and view all the answers

What does competition mean in real estate?

Excess profits tend to attract competition which can affect property success. Signup and view all the answers

Real estate conditions remain constant over time.

False Signup and view all the answers

What are the three approaches to value in real estate?

Cost Approach Signup and view all the answers

What is the sales comparison approach?

A method that compares the subject property with recently sold comparable properties based on substitution. Signup and view all the answers

Give an example of what an adjustment might consider in the sales comparison approach.

Location differences or physical feature variations. Signup and view all the answers

What does the cost approach to property valuation involve?

All of the above Signup and view all the answers

Define reproduction cost.

The dollar amount required to construct an exact duplicate of the subject building at current prices. Signup and view all the answers

What is replacement cost?

The construction cost of a property at current prices that serves the same purpose but is not an exact duplicate. Signup and view all the answers

Study Notes

Appraisal and Value

Appraisal is the process of forming an opinion of value regarding a property.
Value represents the monetary worth derived from the desirability of a property.

Key Concepts in Real Estate

Effective Demand indicates a desire for ownership backed by financial capacity.
Utility refers to the ability of a property to meet human needs and desires.
Scarcity implies that a resource is limited in supply, thus influencing its value.
Transferability describes how easily ownership rights can be transferred between individuals.

Market Dynamics

Market Value is the most likely price a property will sell for, distinct from its highest or lowest price.
Market Price is the actual selling price of a property at a given transaction.
Cost reflects the total expenses incurred in acquiring land, labor, materials, and profit.

Principles of Value

Highest and Best Use determines the most valuable use of a property, which must be legal, feasible, and practical.
Substitution dictates that a property's value is influenced by the price of similar alternatives in the market.
Supply and Demand governs that property value increases when supply is low and demand is high.
Conformity asserts that properties achieve maximum value when they align with neighborhood characteristics.

External Factors

Externalities can positively or negatively affect property value based on outside influences like government policies or neighborhood aesthetics.
Anticipation relates to value changes based on expected future benefits or detriments.

Economic Principles

Increasing and Diminishing Returns describe how improvements to a property can yield different impacts on value over time.
Plottage Value increases when adjacent lots are consolidated, enhancing overall utility and value.
Contribution measures how the value of a property component relates to the entire property's worth.

Competitive and Environmental Factors

Competition arises as excess profits attract new entrants, potentially driving down profitability for established businesses.
Change reflects the constant evolution of economic and physical conditions affecting real estate.

Approaches to Value

Three main approaches to determining value include the Sales Comparison Approach, Cost Approach, and Income Approach.
The Sales Comparison Approach rates properties based on recent sales of similar properties and follows the principle of substitution.

Sales Comparison Approach Adjustments

Date of Sale adjustments are needed due to economic fluctuations between the sale date of comparable properties and the appraisal date.
Location adjustments consider price differences based on geographical desirability.
Physical Feature adjustments account for variances in property characteristics such as size, age, and condition.
Terms and Conditions of Sale are important when financing differs from traditional mortgages.

Cost Approach to Value

The Cost Approach estimates property value based on the reproduction or replacement cost of improvements.
Reproduction Cost is the cost of creating an exact duplicate, while Replacement Cost refers to building a functional equivalent that may not be identical.

Summary

Understanding these principles and approaches is crucial for accurate property appraisal and valuation in the real estate market.

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Description

Test your knowledge on key concepts in real estate with these flashcards. This quiz covers essential terms such as appraisal, value, effective demand, and utility. Perfect for students studying Principles of Real Estate II.