Florida Real Estate Exam Prep 40, Real Estate Appraisal Principles

0:00We are covering real estate appraisal principles for the Florida real estate exam. The single biggest trap in this section is confusing market value, price and cost. The exam will give you a scenario where a seller spends $50,000 on a new patio. That $50,000 is the cost. They list the property for $500,000, which is the asking price. A buyer pays $480,000, which is the sales price. Market value, however, is the appraisers' professional opinion of what a property would likely sell for on the open market and might be different from all those other figures. Remember this phrase, cost is what was spent, price is what was paid, but value is what it's worth. Another foundational concept is highest and best use, which is the legal, physically possible, and financially feasible use of a property that results in its highest value. An exam question might describe an old house on a lot that has been re-zoned for commercial use.

1:01Its highest and best use, and therefore its value, is based on its potential as a commercial lot, not its current use as a home. Appraisers use three main approaches to determine value. The sales comparison approach is best for residential homes and is based on the principle of substitution. This principle states a buyer won't pay more for a property than what an equally desirable substitute would cost. The cost approach is used for unique properties like schools or churches, where there are no comparable sales. The income approach is for income generating properties like a shopping center and relies on the principle of anticipation, the expectation of future income. The exam will test you on which approach is most appropriate for a given property type. Several other principles of value are frequent exam topics. The principle of conformity states that value is maximized when a property fits in with its surroundings. A million dollar mansion built in a neighborhood of $100,000 homes is an example of regression and will not achieve its maximum value.

2:07The principle of contribution is another area where test takers get tripped up. The value of an improvement is not its cost, but what it contributes to the market value. That $50,000 patio might only contribute $20,000 to the final sales price. The exam loves to test this by providing the cost of an improvement and tempting you to choose that figure as the value it adds. Finally, the principles of competition and change highlight that value is dynamic. Competition can drive down high profits and the constant physical and economic changes mean an appraisal is only valid for a specific date. For free practice questions, AI-powered explanations and more exam prep tools, visit OpenExamprep.com. That's OpenExamprepall1word.com