10.THE VALUATION PROCESS AND PRICING PROPERTIES

Brigita Safyra
Mind Map by Brigita Safyra, updated more than 1 year ago
Brigita Safyra
Created by Brigita Safyra about 4 years ago
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10.THE VALUATION PROCESS AND PRICING PROPERTIES
1 COMPARATIVE MARKET ANALYSIS(CMA) Accurate valuation is the most most important part.
1.1 *RECENT CLOSED SALES *THOSE CURRENTLY ON THE MARKET *RECENTLY EXPIRED
2 7 CHARACTERISTICS OF REAL PROPERTY :
2.1 VALUE CHARACTERISTICS- 1.DEMAND 2.IMPROVEMENTS 3.SCARCITY 4.LOCATION
2.1.1 PHYSICAL CHARACTERISTICS - 1.UNIQUENESS 2.IMMOBILITY 3.INDESTRUCTIBILITY
3 SCARCITY is the perceived principle of SUPPLY AND DEMAND : the more supply of goods or service relative to the demand the lower the value.If there is an unlimited supply of something,it is perceived have little value.
4 IMMOBILITY real estate itself cannot move from one place to another.
4.1 INDESTRUCTIBILITY real estate cannot be destroyed.
5 APPRAISAL
5.1 is the opinion of the value of property,as of a specified date,supported by objective data.The opinion is supported in writing with collected data and reasoning.An appraiser uses data from 3 approaches value and applies them: SALES COMPARISON,COST and INCOME
5.1.1 INCOME APPROACH is not generally used in a single family property.
5.1.1.1 SALES COMPARISON APPROACH is the most useful and credible of the three appraisal methods in market value appraisal assignments,especially for non-income-producing residential properties,because it is deeply rooted in actual market activity.A minimum of three comparables is required by most secondary market lenders to ensure an accurate appraisal from sufficient data.
5.1.1.1.1 AN APPRAISAL IS JUST AN OPINION OF VALUE.ONLY THE MARKETPLACE CAN ESTABLISH THE TRUE VALUE OF PROPERTY.
5.1.1.1.2 COST APPROACH The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation. The cost approach bases the value of a property on the cost of replacing it, not on the value of other homes in the area or on its ability to generate income.
5.1.1.1.2.1 6 STEPS - 1.DEFINES THE BASIS FOR THE COST 2.CHOOSES A COSTING METHOD 3.ESTIMATES DEPRICIATION,FUNCTIONAL OBSOLESCENCE AND EXTERNAL OBSOLESCENCE*age life*breakdown*market extraction 4.ADDS "AS IS" CONTRIBUTORY 5.ADDS VACANT LAND VALUE 6.CONCLUDES ON AN OPINION OF VALUE.
5.1.1.1.2.1.1 INCOME APPROACH The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life.
5.1.1.1.2.1.1.1 CAPITALIZATION RATE The discount rate used to determine the present value of a stream of future earnings. Equals normalized earnings after taxes divided by present value, expressed as a percentage.
5.1.1.1.2.1.1.1.1 CAPITALIZATION RATE A number used in gauging a property's value. One multiplies the property's monthly gross income by this figure.
5.1.1.1.2.1.1.1.1.1 NET OPERATING INCOME( NOI) Income after deducting for operating expenses but before deducting for income taxes and interest.
6 DEPRECIATION is the loss in value to property for any reason.
7 PHYSICAL DETERIORATION is actual wear and tear due to age,the elements,or other forces.
7.1 FUNCTIONAL OBSOLESCENCE mean a building is less desirable because of something inherent in the structure itself. (outdated style,outdated fixtures,faulty design)
7.1.1 EXTERNAL OBSOLESCENCE occurs when something outside the control of the property makes it less desirable.(air pollution heavier traffic) Incurable
8 REPLACEMENT is building the functional equivalent of the original building using modern materials,design,and functional layout.
8.1 REPRODUCTION is building in exact replia of the original building,dublicating the materials,design,functional layout,workmanship..
9 ASSESSED VALUE The dollar value of an asset assigned by a public tax assessor for the purposes of taxation.
10 EVALUATION is a study of nature,quality,or utility of certain property interests in which a value estimate is not necessarily required.
11 HIGHEST AND BEST USE is the most profitable,legally permitted,economically feasible,and physically possible use of a property.
12 MARKET VALUE is the theoretical price real estate will likely bring in a typical transaction.(ARMs LENGTH TRANSACTION) meaning the transaction occured under typical conditions in the marketplace,and each of the parties is a relative stranger to one another and was acting in their own best interest.
12.1 MARKET VALUE is the EXPECTED PRICE.
12.1.1 MARKET PRICE is ACTUAL PRICE-what someone has actually paid.
13 VALUE Worth- desirability or utility.
13.1 PRICE amount a ready,willing and able buyer agrees to pay for a property and seller agrees to accept.
13.1.1 COST the total dollar expenditure for the land,materials,legal services,architectural design,financing,taxes paid during construction,interest,profit,..defines property cost.
14 SUBSTITUTION An appraisal principle that states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution.
15 CONFORMITY The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value. In general, conformity assumes that a neighborhood that is reasonably similar in social and economic activity will result in properties that reach their maximum value.
16 CONTRIBUTION means a particular item or feature of a home is worth what it actually contributes in value to that property.
17 RESIDENTIAL MARKET ANALYSIS is an in-depth study of your listing as it stands on its own,as well as in light of current market conditions.
18 MARKET POSITION compared to your listing how many similar properties are for sale in the same neighborhood and for a similar price?now where does listing fit in among these properties?once you have determined your listings market position ,you can effectively market.
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