Property Valuation and Appraisal Practice -The subject property refers to the property being

appraised.
-Market value is just an estimate of what a property
should sell for in the current market. Market price is what -An appraisal is usually performed on a piece of property
it did sell for. The other answer choices are not true. to help with buying, selling, eminent domain, estate
valuation, exchanges of ownership, mortgage approval,
-The sales comparison (sometimes still referred to as property and other taxes, and various court proceedings.
“market”) approach to valuation involves an appraiser
locating similar properties to the property being -Location is one of many factors in determining property
appraised. When there are more homes on the market, value and may be the most important.
it is easier for the appraiser to find similar properties and
-The location of a piece of property can both increase
to make valuation adjustments as appropriate.
and decrease its perceived value, as the many factors
- A=P(1+r)t, where P is the initial deposit, r is the interest surrounding that location fluctuate, including: school
rate, t is the number of periods, and A is the amount in districts, crime rates, traffic, access to employment, and
the account after t periods. many more.

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

- 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