Term
|
Definition
The most probable price which a property should bring ...
- in a competitive and open market
- under all conditions requisite to a fair sale
- the buyer/seller acting prudently and knowledgeably
- assuming the price is not affected by undue stimulus
|
|
|
Term
|
Definition
- Ascertain the physical and legal identification of the property involved
- Identify the property rights to be appraised or valued
- Specify the purpose of the appraisal
- Specify the effective date of the estimate of value
- Gather and analyze market data
- Apply appropriate techniques to derive the estimate of value
|
|
|
Term
| Sales Comparison Approach |
|
Definition
| based on data provided from recent sales of properties highly comparable to the property appraised |
|
|
Term
| Stipulations when using the Sales Comparison Approach |
|
Definition
- arm's-length
- normal market transactions
|
|
|
Term
| What is the rationale for the sales comparison approach? |
|
Definition
| an informed investor would never pay more for a property than what other investors have recently paid for comparable properties |
|
|
Term
| For the Sales Comparison Approach, what are the two adjustments that can be made? |
|
Definition
- price per square foot paid for each comparable can be adjusted to determine the market value for the subjec
- the relationship btwn gross rental income and sale prices on the comparable can be applied to the subject with appropriate adjustment
|
|
|
Term
| Adjustments on the square footage cost should be made.... |
|
Definition
| relative to the property being valued |
|
|
Term
| Positive features that comparables possess relative to the subject property... |
|
Definition
| require negative adjustments |
|
|
Term
| The income approach is based on |
|
Definition
| ..the principle that the value of a property is related to its ability to produce CF |
|
|
Term
| In the income approach, what are two techniques that are similar to the sales comparison approach, but focus more on income-producing aspects |
|
Definition
| gross income multiplier and direct capitalization |
|
|
Term
|
Definition
relationships between gross income and sale prices for all comparable properties that are applied to the subject property
GIM=Sales Price/Gross Income |
|
|
Term
|
Definition
| the comparable property sold for 6 times the current gross income |
|
|
Term
| What is the difference between potential gross income and effective gross income? |
|
Definition
| PGI assumes all space is occupied |
|
|
Term
| When would you use EGI in comparing properties? |
|
Definition
| If the vacancy rates for a comparable is very high |
|
|
Term
| What is an additional assumption that is critical to the GIM method? |
|
Definition
| That all subjects operating expenses are about the same poportion of gross income |
|
|
Term
| How is a GIM of R chosen for the subject property? |
|
Definition
| The appraiser places more weight on some than others...does not average |
|
|
Term
| If the appraiser cooses a GIM of 6 for the subject property who has an expected gross income of $36,600. What is the sale price? |
|
Definition
|
|
Term
| If there is a large disparity in operating expenses..what should you analyze? NOI or GIM? |
|
Definition
|
|
Term
| net operating income is found by... |
|
Definition
| subtracting operating expenses from rents reported on comparables at the time of sale |
|
|
Term
|
Definition
|
|
Term
| Can the GIM and Cap Rates approach provide clues into investment potential? |
|
Definition
| NO...only serves as benchmarks |
|
|
Term
|
Definition
| very similar in quality, of construction, size,age, functionality, location, and operating efficiency, lease maturities, lease options, rent escalators, easements, title restrictions etc |
|
|
Term
| When do we want to forcast and analyze cash flows over a period? |
|
Definition
| When we can forsee any material change in market supply and demand... |
|
|
Term
|
Definition
| required return for a real estate investment based on its risk when compared with returns earned on competing investmens and other capital bench marks |
|
|
Term
| If the period of analysis is 10 years for our prospective real estate investment, the discount rate selected should be... |
|
Definition
greater than
-
interest rate on a 10 t bill
-
'' 10 year commercial mortgage loan
-
WACC of corporate bond rates or borrowing rates for tenants in the property being evaluated(must be rewarded for buying and not renting)
|
|
|
Term
| What is the riskiest investments and highest returns in order... |
|
Definition
- Stocks
- Real Estate
- Corporate Bonds
- Commercial Mortgages
- T Bills
|
|
|
Term
| What are the 4 steps in estimating the present value of an income producing real estate? |
|
Definition
- Forecast NOI
- Holding Period
- Discount Rate
- Reversion Value
|
|
|
Term
| Three approaches to finding a reversion value... |
|
Definition
- Developing Terminal Cap Rates Based on Expected Long Term Cash Flows
- Estimating the Terminal Cap Rate by Adjusting the Going In Cap Rate
- Estimating the resale price based on an expected chagne in property values
|
|
|
Term
|
Definition
-
RT=(r-g)when average long-run growth (g) in NOI is expected to be positive
-
RT=(g) when long-run growht is expected to be zero
-
RT=(r+g) when long-run growth is expected to be negative
|
|
|
Term
| Why would the terminal cap rate larger than the going in cap rate? |
|
Definition
| over time properties age and the NOI for an older property should be less than a new |
|
|
Term
|
Definition
| difference between total property value which is driven by rents and CFs, and the cost of constructing an improvement on a given site |
|
|
Term
| What is a probable reason for volatility in land prices? |
|
Definition
| fundamental change in a location has occured, or is expected to occur, thereby changing one of the variables in our PV equation |
|
|
Term
| What is a "free and clear" discount rate? |
|
Definition
| does not consider whether the property was to be financed or what was the debt to equity |
|
|
Term
| Value (V) must be equal to the |
|
Definition
| present value of expected mortgage financing (M) and the present value of equity investment (E) mad by investors |
|
|
Term
| Why would NOIs and Present Values be different? |
|
Definition
| capitla expenditures and nonreccuring outlays |
|
|
Term
| Excess supply produces... |
|
Definition
|
|
Term
| When demand exceeds supply of availible rental space, this tends to .... |
|
Definition
| reduce cap rates and increase proeprty valeus |
|
|
Term
| Increase in long term interest rates lead to... |
|
Definition
| decline in PV and higher Cap Rates and higher required returns |
|
|
Term
| As interest rates fall.... |
|
Definition
| PV rises and Cap Rates Fall and required rates fall |
|
|
Term
| Excess supply and rising interest rates |
|
Definition
| major decline in property values and a significant increase in cap rates |
|
|
Term
| Lower cap rates(higher property values) tend to be brought about by: |
|
Definition
- Unanticipated increases in the demand for real estate relative to supply
- Unanticipated decreases in supply
|
|
|
Term
| Higher market cap rates(lower proeprty values) tend to be brought about by: |
|
Definition
- Unanticipated increases in the supply for real estate relative to demand
- Unanticipated increases in interest rates
|
|
|
Term
|
Definition
| any informed buyer of real estate would not pay more for a property than what it would cost to buy the land and build the structure |
|
|
Term
| The essence of the cost approach is... |
|
Definition
to price the improvement at its current replacement cost...then that amount is reduced by any costs that
- can be expended to upgrade the improvement or to cure obvious deterioration due to needed maintenance
- or that correspond to the economic loss associated with nonrepairable factors due to changes in design or layout efficiency that may make newer buildings less expensive to operate
|
|
|
Term
| The cost approach should be used when... |
|
Definition
| the structure is relatively new and depreciation does not present serious complications |
|
|
