Exam 2 Woodyard Ch 9 12 13 14 15 16 17 Vacancy and collection losses NOI Net Operating Income Potential Gross Income Effective gross income NOI Fixed and variable operating expenses Cap Rate NOI Acquisition Price PUD Planned Unit Development Allow developers flexibility when applying the traditional requirements The Taking Issue The question of whether zoning laws or changes in the zoning law negatively affect property values and require the property owners to be monetarily compensated Must have to criteria o Public purpose o Just compensation Inverse Condemnation May be used if a local government authority downzones land lowers the value to limit its use rather than purchasing it from the landowners Beach example moving the beach line farther inland limits the use of the property therefore lowering its value Traditional Sales Comparison Approach Reconcile the comparable properties final adjusted sale prices to determine a single indicated value Sales Comparison Adjustment Grid Transaction Price Conditions of sale Financing term Normal Sale price Market conditions Market adjusted sales price Location Physical characteristics Legal characteristics Use Nonrealty items Final adjusted sales price Reproduction vs Replacement costs Reproduction o Cost to construct the building today replicating it in exact detail o This is the technical generally applied by appraisers Replacement o The cost required to construct a building of equal utility using modern construction techniques materials and design Physical Deterioration Curable vs Incurable short lived Curable Short lived o The cost of replacement will be no greater than the value added by o The estimated physical deterioration of these items is equal to the replacing them cost of replacing them o Example Replacing cheap carpet before sale normally will get your money back Incurable Short lived replacing them o The cost of replacement will be greater than the value added by o Example Putting in a pool probably won t get your money back Direct Market Extraction The most straightforward method of estimating the cap rate Create chart for multiple buildings Forecast NOI Price Cap Rate Mortgages Mort means death Real estate financing involves two separate obligations the promissory note and the mortgage o The borrower who gives the mortgage is the mortgagor o The lender who receives the pledge is the mortgagee Secondary Market Fanny Mae and Freddie Mac Clauses found in mortgage documents Includes the signature of the mortgagor Purchase money mortgage Occurs when the owner takes the role of both the seller of the property and the first mortgage lender Federal National Mortgage Association Fannie Mae and Federal Home Loan Mort Corp Freddie Mac Own 40 of mortgages Adjustable Rate Mortgages ARM The index The effective cost of borrowing o Rate the charge their best customers in New York City Calculation to determine the actual rate of borrowing when a borrower repays the loan before the life of the loan The refinancing decision A rule of thumb that suggests that borrower s refinance when the market mortgage rates are 150 to 200 basis points less than the borrower s current mortgage rate Government National Mortgage Association Ginnie Mae Guarantees the timely payment of principle and interest on MBS primarily FHA and VA pools Does not buy and sell large number of mortgages Participation mortgages Income kickers o Require borrowers to pay the lender a specified percentage of the property s gross or net income or any income in excess of a predetermined breakeven amount o Require borrowers to pay the lender a percentage of the proceeds Equity Kickers from the sale of the property Contingent interest o Is the additional payments received by the lender contingent on the performance of the property in the participation Highest Beacon Score 850 Most widely held mortgage Commercial mortgages Ground Lease Lease that is held 20 99 years Comprehensive plan Recourse financing repay the loan Nonrecourse financing obligation Mortgage Bankers vs Brokers Mortgage Bankers A local government s general guide to a community s growth and development based on the community s goals and objectives Mortgage documents that include a note containing a personal promise to When a note is used and borrowers do not have personal liability for the debt o Full service mortgage companies which process close provide funding and sell the loans they originate in the secondary mortgage market Mortgage Brokers o Intermediary between those who demand and those who supply mortgage funds o Help reduce operating costs for banks