Qualifying the Property - Chapter 9

An estimate of a property's value, conducted by a licensed professional.

The most likely price a property would sell for in a competitive market, with both buyer and seller being knowledgeable and acting freely.

The relationship between the amount borrowed for a property and the property's value, calculated as a percentage.

An appraisal method that relies on comparing the subject property to similar, recently sold properties.

An appraisal method that estimates the cost to rebuild the subject property new, minus depreciation.

The most probable price a property would sell for in a competitive market, with both buyer and seller being knowledgeable and acting freely.

The relationship between the amount borrowed for a property and the property's value, calculated as a percentage.

An appraisal method that estimates the cost to rebuild the subject property new, minus depreciation.

The loss of value in a property over time due to wear and tear, obsolescence, or other factors.

A method to estimate the value of income-producing properties by dividing the property's annual gross income by a capitalization rate (cap rate).

Income can be categorized into three types: stable monthly income, income with uncertain duration, and income from assets.

Income from assets includes sources like dividends from investments and rental income. It depends on the asset's earning potential and isn't necessarily a regular monthly income.

The net equity in a property is calculated by taking the property's current market value and subtracting any liens or encumbrances (like outstanding loans) and selling expenses.

Lenders determine the maximum loan amount using the smaller value between the sales price and the appraiser's assessed valuation.

The appraisal process involves a series of steps to determine a property's fair market value. It starts by defining the problem and determining the scope of work, followed by data collection and analysis, then value estimation using various methods, and ending with the appraisal report.

The principle of substitution states that a property's maximum value is limited by the cost of acquiring a comparable property that is equally desirable.

The appraised value is an estimate of a property's worth, while the sales price is the actual amount paid for it. Lenders usually base the loan amount on the lower of the two.

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) requires appraisals in federally related loan transactions to be completed by state-licensed or state-certified appraisers.

A CMA uses current listings, expired listings, and recent sales data to estimate a property's value. Appraisals only use recent comparable sales.

Comparable sales are recent transactions that are similar to the subject property. Adjust for differences like location, size, and condition to determine the subject property's value.

A lower LTV often indicates less risk for the lender. This is because a larger down payment means the borrower is less likely to default on the loan. If the borrower defaults, the lender is more likely to recover their investment through foreclosure sale proceeds.

Lenders often charge higher interest rates and fees for loans with a higher LTV. This is to compensate for the increased risk associated with higher LTV loans.

Lenders use LTVs as a guideline to determine the maximum loan amount they are willing to provide. The maximum LTV allowed for different types of loans can vary.

The maximum loan amount is determined by the lower of either the sales price or the appraised value of the property.

FIRREA, passed in 1989, made it mandatory for federally related loans to use appraisals prepared by state-licensed or certified appraisers. Appraisals must adhere to the Uniform Standards of Professional Appraisal Practice.

The relationship between the loan amount and the property’s value, expressed as a percentage.

A professional assessment of a property's value, conducted by a licensed appraiser.

An appraisal method that compares the subject property to similar, recently sold properties.

These are properties similar to the subject property that have recently sold. These sales provide data points to help determine the value of the subject property.

This happens when a property's value decreases over time due to factors like wear and tear, obsolescence, or changes in the surrounding area.

This type of depreciation is considered 'curable' if fixing the problem adds more value than the cost of the repair. For example, a leaky roof can be fixed for a relatively low cost.

This type of depreciation is considered 'incurable' because fixing the problem would cost more than the added value it would bring. An example is a house located near a noisy highway.