Real Estate Valuation
22 Questions
1 Views

Real Estate Valuation

Created by
@InterestingKoala

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

When using the cost approach to valuation, what must be obtained?

  • Historical data for depreciation
  • Future predictions for land values
  • Past market data for improvement values
  • Current market data for land values (correct)
  • What is the purpose of deducting an amount for depreciation in the cost approach?

  • To determine the value of the land
  • To determine the current market value of the improvements
  • To account for the decrease in value of the improvements over time (correct)
  • To calculate the cost of reproducing the improvements
  • What is an important area of research when considering an investment in 'distressed' properties?

  • Market research to determine the current market price
  • Regional dynamics to determine the growth of the area
  • Title search to determine the value of the property
  • Market research to determine an expected future price (correct)
  • What is the maximum deduction for a qualified residence?

    <p>$250,000</p> Signup and view all the answers

    What is an important consideration in regional dynamics?

    <p>All of the above</p> Signup and view all the answers

    What is the primary purpose of a title search?

    <p>To determine any defects in the title and/or liens</p> Signup and view all the answers

    What is the main concept behind the Sales Comparison Approach?

    <p>Estimating the value of a property by comparing it with recently sold similar properties</p> Signup and view all the answers

    What is the formula used to estimate the value of a property using the Cost Approach?

    <p>Cost New - Depreciation + Land Value</p> Signup and view all the answers

    What is the Gross Rent Multiplier (GRM) used for?

    <p>To estimate the value of a property using the Income Approach</p> Signup and view all the answers

    What is the purpose of the Sales Comparison Approach?

    <p>To estimate the value of a property in an active residential market</p> Signup and view all the answers

    What is the formula used to estimate the value of a property using the Income Approach?

    <p>GRM x Rental Income</p> Signup and view all the answers

    What type of property is the Cost Approach most effective for?

    <p>Special use property or newer homes</p> Signup and view all the answers

    What is the purpose of the Cost Approach?

    <p>To estimate the value of a property by calculating its cost new minus depreciation and adding land value</p> Signup and view all the answers

    What is the purpose of the Income Approach?

    <p>To estimate the value of a property that generates cash flow</p> Signup and view all the answers

    What is homeownership considered besides shelter?

    <p>An investment</p> Signup and view all the answers

    What is a result of population growth on housing demand and price appreciation?

    <p>Increase in demand and price appreciation</p> Signup and view all the answers

    What happens to demand for purchased housing when federal income taxes increase?

    <p>Demand decreases</p> Signup and view all the answers

    What is the relationship between the cost of rental housing and demand for purchased housing?

    <p>Inverse relationship</p> Signup and view all the answers

    What is the impact of employment increase on demand for purchased housing?

    <p>Increase in demand</p> Signup and view all the answers

    What is the approach used to appraise property by comparing selling prices of similar properties?

    <p>Market approach</p> Signup and view all the answers

    What is a driver of housing demand and price appreciation?

    <p>Population growth</p> Signup and view all the answers

    What happens to demand for purchased housing when mortgage interest rates increase?

    <p>Demand decreases</p> Signup and view all the answers

    Study Notes

    Homeownership

    • Homeownership is not just a shelter, but also an investment vehicle.
    • Price influences are driven by income, employment, interest rates, and renting vs. owning.

    Economic Influences on Housing Demand

    • Population growth increases demand and house price appreciation.
    • Increased federal income taxes decrease demand for purchased housing.
    • Increased mortgage interest rates decrease demand for purchased housing.
    • Increased cost of rental housing increases demand for purchased housing.
    • Employment increases lead to increased demand for purchased housing.
    • Household income increases lead to increased demand for purchased housing.
    • Household formations increase demand for purchased housing.

    Economic Influences on Housing Demand (Table)

    • Population growth: +
    • Household formation: +
    • Employment: +
    • Household income: +
    • Interest rates: -
    • Federal income tax rates: -
    • Cost of renting housing: +

    Appraisal Approaches

    • Market Approach (Sales Comparison Approach)
      • Estimates value by comparing selling prices of similar properties.
      • Adjusts values for dissimilarities.
    • Cost Approach
      • Establishes a value for the site.
      • Determines the cost of reproducing the improvements.
      • Adds the two values and deducts depreciation.
    • Income Approach
      • Uses Gross Rent Multiplier (GRM) to estimate value.
      • Estimates value by multiplying GRM by rental income.

    Appraisal: Qualifying the Property

    • Sales comparison approach is most effective for active residential markets.
    • Cost approach is most effective for special use property or newer homes.
    • Income approach is most effective for cash flow generating property.

    Cost Approach Example

    • Cost New = $200,000 (2,000 Sq Foot x $100 per square foot new)
    • Depreciation Estimate = $20,000 (10% of total effective 100 year life span)
    • Site Value = $30,000
    • Subject Value Estimate = $200,000 - $20,000 + $30,000 = $210,000

    Income Approach Example

    • GRM = 4, derived from the market
    • Subject potential gross income (PGI) = $200,000 per year
    • Subject Value Estimate = 4 x $200,000 = $800,000

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    This quiz covers the cost approach to property valuation, including adjusting for dissimilarities and determining land values and improvement costs.

    More Like This

    Real Estate Appraisal Flashcards
    32 questions
    Real Estate Appraisal Chapter 19 Quiz
    37 questions
    Real Estate Appraisal Chapter 5 Quiz
    35 questions
    Use Quizgecko on...
    Browser
    Browser