Property Valuation and Appraisal Practice
appraised.
-Market value is just an estimate of what a property
should sell for in the current market. Market price is what
it did sell for. The other answer choices are not true.
-The sales comparison (sometimes still referred to as
“market”) approach to valuation involves an appraiser
locating similar properties to the property being
appraised. When there are more homes on the market,
it is easier for the appraiser to find similar properties and
to make valuation adjustments as appropriate.
- A=P(1+r)t, where P is the initial deposit, r is the interest
rate, t is the number of periods, and A is the amount in
the account after t periods.
In this case, P=400, r=0.06, and t=5. Substitute the values
into the equation and calculate A:
A=400(1+0.06)5=535.29
-simple interest is paid only to the principal owed, when
accrued interest is added in or included, the interest is
compounding.
-A real estate agent or broker can not prepare an official
property appraisal. Instead, they can prepare a
Comparative Market Analysis (CMA) or Broker’s Opinion
of Value (BOV).
-Land is the only property asset that is fixed and
immobile. Like other properties, land can decrease or
increase in value as surroundings become more or less
desirable, even though it cannot “depreciate” in an
accounting sense. The other options are all not true or
not unique to land.
-Appraisers do use a variety of mathematical techniques
in their work, but the act of arriving at the value of a
particular piece of property is not precise.
-An appraiser will investigate economic, environmental,
physical, and social factors when estimating the value
for a particular piece of property.
-To avoid conflicts of interest, most appraisers work
independently on a fee-for-service basis.
-The subject property refers to the property being
-An appraisal is usually performed on a piece of property
to help with buying, selling, eminent domain, estate
valuation, exchanges of ownership, mortgage approval,
property and other taxes, and various court proceedings.
-Location is one of many factors in determining property
value and may be the most important.
-The location of a piece of property can both increase
and decrease its perceived value, as the many factors
surrounding that location fluctuate, including: school
districts, crime rates, traffic, access to employment, and
many more.
-Vehicle traffic can affect the value of property, as
generally less traffic is desired around residential
property, while more of certain types of traffic is desired
around commercial property. Generally, business prefer
high traffic if it is of the type to bring additional
customers to them. Types of traffic that would not be
appreciated by businesses would include traffic
produced by neighboring manufacturing businesses,
junkyards, and car dealers.
- Location affects the value of property through the
following factors: access to employment, amenities and
services, hazards and nuisances, nearness to
transportation, neighborhood compatibility, safety,
schools, and traffic.
- An arm’s length transaction is one where both parties
are free of duress and potential conflicts of interest. Only
in an arm’s length transaction can the agreed upon value
be considered fair market.
- Value in use is an added property value unavailable to
the typical buyer because it’s for a specific person using
it for a specific purpose.
- Investment value is the value to a specific investor with
a specific plan for the property. Unlike “value in use,”
investment value does not presuppose a use already in
place.
Financing Practice Test
- In a traditional second mortgage, a borrower would
take all of the money loaned to them at one time. In a
home equity line of credit the borrower may take up to
a specified amount, but they do not need to take that
amount in full or all at one time.
-primary advantage of a biweekly mortgage is that it has
26 2-week periods each year, those with a biweekly
mortgage will make 13 yearly payments instead of 12.
This results in a faster loan payoff, typically between 18-
22 years. While easier budgeting and a better interest
rate may be true in certain mortgage scenarios, the
primary advantage of a biweekly mortgage is faster loan
payoff.
- A satisfaction piece is a document from the lender that
states the property has been paid off and is released
from the lien.
-While all of these are second mortgage markets [FNMA
(Fannie Mae), FmHA, FNMA (Freddie Mac), GNMA
(Ginnie Mae)]and Freddie Mac does have multiple low-
income housing programs, only Ginnie Mae was created
to encourage low-income housing.
- Refere to Q5: One point is equal to 1% of the total loan
amount. If the loan is $275,000, than the amount would
be:
$275,000 * .01= $2,750
-Mortgage lenders use a process called underwriting to
assess the risks of making a loan. To assess a potential
borrower’s risk, they look at factors such as salary, credit
history, and terms of employment.
- If a loan has a 90% loan-to-value ratio, the borrower is
responsible for putting down 10%. Most conventional
home loans have a loan-to-value ratio of 80%.
- A swing loan (also sometimes referred to as a “bridge”
or “gap” loan) is a short term loan that allows borrowers
to borrow against their current property in order to buy
a new one. They are typically taken out when the
borrower wants to buy a bigger home but hasn’t sold
their current property.
-The three c’s of underwriting: Capacity is the cash
reserve and debt ratio of the borrower. Collateral
includes their down payment and property types. Credit
includes their credit score and accounts.
- In a reverse mortgage, the lender gives money to the
borrower using the home itself as collateral. The loan
typically does not require repayment until death or until
the homeowner moves out. Reverse mortgages are
popular options for those with all three of these
attributes: elderly and who are “house rich and cash
poor,” meaning they have a lot of equity in their home
but not a lot of liquid cash.
- The mortgage broker is an intermediary and does not
create, sell, or underwrite loans (which is the job of the
lender).
-charging annual loan servicing fees, charging loan
origination fees, charging loan application fees are
common processing and maintenance fees mortgage
lenders charge and make money from.
- Subprime loans carry a higher interest rate because the
bank/lender feels they carry greater risk of full
repayment.
- Rate x Loan Balance = Annual Interest
The annual interest in a simple interest setup is the
balance of the loan multiplied by the interest rate.
-tool the Federal Reserve can use to control/influence
monetary policy and supply: raising and lowering
reserve requirements for banks, providing discount
rates, buying and selling securities on the open market
- A note, or promissory note, is evidence of a debt that
can be resold. It is a financial instrument given by a
borrower to the lender as promise to repay a debt
- The mortgage along with the note are given to the
lender to obtain a loan. It is a written contract pledging
real property owned to secure a debt
- Amortized loans are the norm in most residential Real
Estate and gradually lower the owed amount through
monthly payments to principal and interest.
- Fixed rate mortgages are locked in at the same rate for
the life of the loan, while ARM mortgages have a rate
that can “float” or “ride” market rates.
- A foreclosure sale occurs when the owner cannot sell
the property via short sale. If it doesn’t sell in a
foreclosure auction, it becomes property of the lending
institution.
Other info:
-Steering is the act of directing (or not directing) clients
to a certain area based on race, religion, sex, familial
status, national origin, or handicap. While the agent may
believe she is acting benevolently by directing her buyers
to an area they will be “comfortable,” this practice is a
violation of the federal Fair Housing Act.
- Regulation Z states the Annual Percentage Rate, or APR,
(cost of credit) must be disclosed when borrowers apply
for credit. Regulation Z (also called the Truth in Lending
Act) does not set a minimum or maximum interest rate.
create an agency by ratification by approving the sale
anyway.
- Agency coupled with an interest is when an agent
invests time or money in a property and also agrees that
before doing so, he or she will be the agent (but one is
not conditional on the other).
- As real estate buyers became aware that most agents
were protecting the seller’s interest, buyer agency
agreements were created to protect buyers’ interests.

- A finance charge is any charge made by the lender of

credit that the borrower is directly or indirectly required
to pay. The borrower is not responsible to pay the seller’s
points, but is responsible for items such as finder’s fees,
appraisal fees, and interest.

- dual agency is when a real estate agent is allowed to

represent both the buyer and seller of a piece of real
estate. Dual agency is sometimes referred to as “limited
agency.”

-In a single agency relationship, a real estate agent is

hired by either the buyer or the seller and must keep that
party’s best interests in mind.

- Transactional brokerage is when an individual can be

paid for brokering a real estate transaction, yet represent
neither the buyer nor the seller.

- Agency disclosure laws help clear up confusion over

whose interests are being represented in a transaction.
These laws are in place to protect buyers from being
mislead by agents who are actually representing the
sellers.

- With express agency, both the agent and principal must

come to a verbal or written agreement about
representation. The agent and the principal agree that
the agent will represent the principal.

- Legally, if both parties have taken actions toward a sale,

then the agent and principal have entered into an
implied agency.

- Agency by estoppel is created when agents perform

duties outside of what they would normally do, though
related to what their initial task was.

- If an agent sells a piece of property without any contract

or permission from the principal, the principal may