Recording-2025-03-12T12:54:39.064Z

Market Value vs. Market Price

• Market Value: Most probable price an item can bring in an open competitive market.

• Market Price: The actual amount that a buyer is willing to pay for an item.

  • Example: A house can be listed for $400,000, but the market price may differ based on buyer willingness.

  • Overpricing by some agents is common.

Market Cost

• Market Cost: Total cost to produce or obtain a service, including material and labor.

Key Concepts to Remember

1. Conformity

• Property value maximizes when it conforms to its surroundings.

  • Example: In neighborhoods with old houses being rebuilt, the overall property value can increase as conformity is achieved.

2. Highest and Best Use

• The use most likely to produce the greatest return on the investment.

3. Substitution

• Value influenced by costs of equal properties; relevant when determining property pricing.

4. Increasing and Diminishing Returns

• Excessive improvements do not equate to equal increases in property value.

  • Example: Adding a $400,000 addition to a $600,000 house likely will not produce a $1 million sale price.

Real Estate Improvement Considerations

• Excessive Improvements: Renovations must be justified; not always yield proportional returns.

• Plottage: Combining separately owned parcels does not necessarily increase value and can complicate sale.

• Anticipation: Buying based on expected future value increases; example of future developments (e.g., a new casino).

Property Value Determinants

Contribution

• Improvements on one property can lead to increased values of surrounding properties.

Progression and Regression

• Property values can be influenced by the surrounding neighborhood properties.

Market Trends and Variables

• Demand: The desire to buy and the ability to pay.

• Utility: Items must meet human needs to hold value (e.g., shelter).

• Scarcity: Limited supply raises value.

• Transferability: The ability to transfer ownership affects market value.

Influences on Real Estate Market

• Demographics, Employment, and Income: These factors influence the buyer's ability to engage in the market.

• Government Policies: Current events and policies impact real estate dynamics.

Appraisals vs. Assessments

• Appraisals: Determine market value, used for financing. Appraisers must be licensed or certified.

• Assessments: Conducted for tax purposes; do not assess the interior of a home.

• Key takeaway: Agents provide comparative market analyses (CMAs) but are not licensed appraisers.

Methods of Evaluation

Market Data Approach

• Uses direct sales comparisons to analyze property value.

Cost Approach

• Focuses on replacement costs minus depreciation; applicable for non-income generating properties.

Income Approach

• Relevant for income-producing properties assessing potential rental income and operating expenses.

Real Estate Mathematics

Important Formulas

• Area Calculation: Length x Width.

  • 1 acre = 43,560 square feet; 1 square mile = 640 acres; 1 mile = 5,280 feet.

• Loan-to-Value: Loan amount / Property value.

• Discount Points: Calculate total costs for points based on loan amount.

Closing Costs and Real Estate Transactions

• Breakdown costs: Calculate profits based on sale price, mortgage balance, and commission.

• Consideration of prorated property taxes and other adjustments on closing day.

Conclusion

• Be prepared to apply theoretical concepts practically, including market data evaluation, property tax calculations, and the influence of external factors in real estate. Understanding these dynamics will be crucial for the exam.