BREA Salesperson Exam cheat sheet

Value in exchange is the most probable price a property should bring in a competitive, open market under all conditions requisite to a fair sale; value in use is the value to a specific owner for a specific purpose.

The four agents of production are land, labor, capital, and entrepreneurial coordination; land's share of the total return is ground rent.

Principle of contribution: an item of improvement adds value only to the extent it contributes to market value, regardless of its cost.

Principle of substitution: a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute with no undue delay.

Highest and best use, conformity, progression, regression, anticipation, change, balance, and external obsolescence are the core appraisal principles.

Anticipation holds that value is created by the expectation of future benefits; present value of future income is the basis of the income approach.

Progression and regression describe how a property's value is affected by surrounding properties: a lesser property gains from better neighbors, a superior property loses from inferior ones.

Market value assumes a willing buyer and seller, both reasonably informed, no undue stimulus, and payment in cash or equivalent terms; price is the actual amount paid.

Cost approach formula: value = replacement or reproduction cost new − total depreciation + land value (site value).

Accrued depreciation has three components: physical deterioration (curable and incurable), functional obsolescence (curable and incurable), and external obsolescence.

Economic age-life method: incurable depreciation ratio = effective age ÷ total economic life; applied to cost new.

Sales comparison approach: value = adjusted sale price of comparables; adjustments are made to the comparable for differences, never to the subject.

Gross rent multiplier (GRM) = sale price ÷ gross monthly rent; value = GRM × subject gross monthly rent.

Direct capitalization: value = net operating income ÷ capitalization rate; cap rate = NOI ÷ sale price.

Gross income multiplier (GIM) = sale price ÷ gross annual income; value = GIM × subject gross annual income.

Replacement cost is the cost to build a substitute with equivalent utility at current prices; reproduction cost is the cost to duplicate the exact property.

Highest and best use is the reasonably probable, legal, physically possible, financially feasible, and maximally productive use of a site as if vacant and of the property as improved.

The four tests of highest and best use, applied in order: legally permissible, physically possible, financially feasible, and maximally productive.

Interim use is a temporary use that is not the highest and best use but is reasonable until a higher use becomes feasible.

Excess land is land that can be subdivided and developed separately; surplus land cannot be separately developed under current zoning.

A legal nonconforming use predates current zoning and may continue; it affects highest and best use analysis.

Physical characteristics affecting use include size, shape, frontage, topography, drainage, soil, and access; legal characteristics include zoning, easements, and deed restrictions.

Financial feasibility requires that the use produce a positive return to land after all costs, including required profit to the developer.

Plottage is the increase in value from assembling adjacent parcels into one larger tract; assemblage is the process of combining them.

In sales comparison, comparable sales should be recent, similar in location, size, age, and condition, and at arm's length.

Adjustment sequence: property rights, financing, conditions of sale, market conditions (time), then physical and locational characteristics.

If the comparable is superior to the subject, subtract; if inferior, add the adjustment to the comparable's price.

Net adjustment = sum of positive adjustments minus sum of negative adjustments; gross adjustment is the sum of absolute values.

Effective gross income = potential gross income − vacancy and collection loss + other income.

Net operating income = effective gross income − operating expenses; excludes debt service, depreciation, and income taxes.

Capitalization rate reflects risk, time, and capital recovery; it is derived from comparable sales or band of investment.

Operating expense ratio = operating expenses ÷ effective gross income; it is used to test comparables' expense levels.

USPAP is issued by the Appraisal Standards Board (ASB) of The Appraisal Foundation; it is not a law but is adopted by reference in many jurisdictions.

The Competency Rule requires an appraiser to have the knowledge and experience to complete an assignment competently before accepting it.

The Ethics Rule prohibits accepting an assignment contingent on a predetermined value, and prohibits misleading or fraudulent reporting.

The Jurisdictional Exception Rule applies only when a law or regulation conflicts with USPAP; the appraiser must disclose the exception.

Standards 1 and 2 govern real property appraisal development and reporting; Standards 3 and 4 cover appraisal review; Standards 5 and 6 cover mass appraisal.

An appraisal report must state the scope of work, intended use, intended user, definition of value, and any extraordinary assumptions or hypothetical conditions.

The Record Keeping Rule requires retention of workfiles for at least five years after the report date, or two years after final disposition of a judicial proceeding.

USPAP requires the appraiser to identify the problem, determine the scope of work, and analyze the subject and comparables before concluding value.

The California Bureau of Real Estate Appraisers (BREA) licenses and regulates real estate appraisers under the Business and Professions Code.

Appraiser license levels in California: Trainee, Residential, Certified Residential, and Certified General.

The California Real Estate Appraisers Licensing and Certification Law is found in Division 4, Part 3 of the Business and Professions Code.

California requires appraisal reports to conform to USPAP and to the Uniform Standards of Professional Appraisal Practice as adopted by BREA.

The California Department of Real Estate (DRE) regulates real estate brokers and salespersons; BREA regulates appraisers.

A licensed appraiser must not pay a referral fee to an unlicensed person for the referral of appraisal work.

California law requires disclosure of the appraiser's license number on appraisal reports and in advertising as required by regulation.

Federal and state fair housing laws prohibit basing appraisals on race, color, religion, sex, national origin, familial status, or disability.

An appraisal report must be written so that the intended user can understand the analysis; it must not be misleading.

The three report formats under USPAP are Appraisal Report, Restricted Appraisal Report, and Oral Report.

The Appraisal Report format must summarize the data and analysis; the Restricted Appraisal Report may state conclusions with less supporting detail and is limited to the stated intended user.

A complete appraisal report typically includes: letter of transmittal, summary of salient facts, scope of work, subject description, highest and best use, approaches to value, reconciliation, and certification.

The reconciliation (final value opinion) must explain why the approach or approaches relied upon are most credible.

An extraordinary assumption is something the appraiser believes to be true but cannot verify; a hypothetical condition is something contrary to fact.

The certification must include the appraiser's signature, license number, and statements required by USPAP, including that the value is not contingent on a predetermined result.

Workfiles must contain sufficient data to support the report and must be retained per the Record Keeping Rule.