Exam (elaborations)
Idaho Real Estate School. MOD 2 Questions with Solutions
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Idaho Real Estate School. MOD 2
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Idaho Real Estate School. MOD 2Appraisal - answer Estimate or opinion of value based on the supportable evidence and
approved methods.
An appraiser is an independent person trained to provide an unbiased estimate of
value. The appraisal value is the appraiser's opinion of that property's worth.
Appraiser - answeran independent person trained to provide an unbiased estimate of
value.
CMA (comparable market analysis) - answerAn analysis of probable value of real estate
done by an individual other than an appraiser. Any real estate licensee may do a market
analysis if they have a reasonable expectation to either list or sell the property.
BPO (broker price opinion) - answerAn opinion of value of real estate done by a
licensee with a broker level license. They may even charge for the opinion of probable
market value.
Elements of value - answer1. Demand with purchasing power
2. Utility
3. Scarcity
D. Transferability
Market value - answerAn estimate of value based on analysis of data. It may not reflect
the cost.
The most probable price a property should bring in if payment is made in cash and the
buyer and the seller unrelated, well informed, and acting without pressure.
Price
aka market price - answerThe amount for which the property actually sold.
Cost - answerThe amount of money used to construct improvement + the value of the
land.
T - answerT or F:
Market value and market price should be equal?
1. Demand
,2. Utility
3. Scarcity
4. Transferability
DUST - answerWhat are the four elements of value?
(DUST)
Demand
(Element of value) - answerThe property must be needed or wanted by someone who
has the purchasing power to obtain it.
Utility
(Element of value) - answerThe property must have a useful purpose or satisfy a need.
The more useful the property is the more likely someone will pay for it.
Scarcity
(Element of value) - answerThe type of property must have some degree of rareness.
This refers to the supply of similar property in relation to the demand for it.
Even if it has utility, it will not have value with overabundant.
Transferability
(Element of value) - answerThe ability to transfer title to a property to someone else.
Ability to will, lease, give away or sell the property.
Anticipation
ie: A prospective buyer believes a suburb will be passing a rent control ordinance -
answerThe value of property may increase or decrease based on the potential
purchasers believe that some future event will benefit or detract from the value of the
property.
ie: commercial development takes over surrounding area, temple is built, etc.
change
ie: A property's value passes through a renewal phase - answerA principle of value
used in appraisal. States that real estate conditions, both physical and economic, do not
remain constant, thus affecting the value of real estate.
Competition - answerA principle of value used in appraisal. States that if substantial
profits are being made, competition will be attracted. The increased competition may
reduce profit and property value.
, ie: if office rents are high and property owners are making money, builders and
investors will be motivated to build more office buildings. Thus, increasing the supply
and reducing rental rates, and therefore profits to the property owners.
Conformity
ie: single-family residence may not reach its full value if it's located in an industrial area -
answerA principle of value used in appraisal. States that the value of property is
maximized if it conforms to the surrounding land use. Sometimes this is accomplished
with zoning laws.
Contribution
ie: A properties value was diminished by $10,000 because it lacks a garage. - answerA
principle of value used in appraisal. States that and improvement's value is equal to the
value added to the property.
Highest and best use
Ie: House located on property that is zoned for commercial use and is next to a busy
shopping center. That property is highest and best use would be for commercial
structure rather than residential use. - answerThe one legal use that provides a property
with it's greatest value or profitability. A principle of value in appraisal.
Increasing and diminishing returns
ie: Adding a second bedroom to a one bedroom house. But by adding additional
bedrooms the increase in value will be smaller and eventually not increase at all. -
answerThe relationship between the cost of improvements and the value they add to
the property. Improvements may initially add substantial value (increasing return) but
will reach a point where they had less value (diminishing return). A principle of value
used in appraisal.
*Plottage - answerThe increased value resulting from the combining or consolidating
(assemblage) of several parcels of land into one larger tract.
Assemblage - answerThe process of merging lots.
Progression, principle of
ie: A homeowner's property value benefits because it is next to a house that has
recently been renovated. - answerThe value of a poorer property will increase if it is
near better property.
Regression, principle of
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