1. Property Valuation Flashcards
A principle of property value that looks at the maximum amount it would cost to buy an alternate property that is the same as the subject property, either by a comparable replacement or an exact reproduction.
Subsitution
A principle of property value that estimates value based on looking ahead at the value, positive or negative, on a property due to possibility of future changes to either the property or its surroundings.
Anticipation
A principle of property value which determines the use that will produce the greatest current value, or the most profitable return on investment.
Highest and best use
A principle of property value which refers to the mix of land uses that maximizes value for all of the properties involved,
Balance
A principle of property value which simply applies this common economic principle to real estate.
Supply and demand
A principle of property value if a particular property is yielding high profits, similar ones are likely to follow and try and get in on the action.
Competition
A principle of property value which where all properties in a given area are likely to benefit from being similar to others.
Conformity
When a smaller property benefits by receiving increased value from being among larger more valuable ones.
Progression
The negative impact on the value of a large and/or more expensive property when it is in an area of smaller or lower-priced propertyes.
Regression
A principle of property value which makes a cost/benefit analysis of the actual increase in property value based on the cost of an improvement.
Contribution (increasing/diminishing returns)
A principle of property value where a loss of value results from any cause.
Depreciation
A principle of property value which applies to physical factors such as normal wear and tear, as well as poor/deferred maintenance or prolonged neglect.
Deterioration
A principle of property value which applies to outdated functionality or non-property influences.
Obselescence
Any downturn from the original condition of the property (e.g. old roof, weathered paint, broken windows)
Physical deterioration
Physical deterioration that includes economically feasible repairs
Curable physical deterioration
Physical deterioration that includes excessive, cost-prohibitive repairs.
Incurable physical deterioration
Outdated design or safety standards.
Functional obsolescence
Functional obsolescence that includes upgrades to things like wiring and plumbing
Curable Functional obsolescence
Functional obsolescence that is generally identified after weighing the value added to the property upgrades and finding the “cure” cost-prohibitive.
Incurable Functional obsolescence
Obsolescence that refers to surrounding influences on a subject property.
External/economic/locational obsolescence
The most probable price a property would bring in a competitive, fair, and open market. The price an informed seller is willing to accept, and an informed seller is willing to pay.
Market value, fair market value
Intended to estimate market value.
Appraised value
The value a taxing authority has placed on a property for tax computations (NOT a current, actual market value)
Assessed value
The maximum amount a lender will lend.
Loan/Mortgage Value
The maximum amount an insurance company will insure.
Insured/agreed Value
An insurance determination of the depreciated value of the property, or replacement cost minus accrued value.
Actual cash value.
What a property is worth to a condemning authority in an eminent domain proceeding.
Condemnation value
The value given on the probated asset list for the real property of a deceased owner.
Estate value.
- Utility
- Scarcity
- Demand
- Transferability
Elements of value
It is useful for something
Utility
The available supply
Scarcity
A combination of the desire to own it and the ability to purchase it.
Demand
It can be sold or exchanged.
Transferability
An estimate of value as of a specified date.
An appraisal
- Define/state the problem
- Determine the data needed and collect it
- Determine the highest and best use of the land and property
- Estimate the property value
- Reconcile the data
- Prepare the final report
The check-list for reaching an estimate of value
An approach to estimate property value which compares the subject property to comparable properties that have recently been sold on the market.
Direct sales (market data) approach
An approach to estimate property value which estimates value based on what it would cost to buy the land and build comparable replacements for all of the property improvements.
The cost approach
- Estimate the value of the land only
- Estimate the new construction cost.
- Determine the accrued, or combined, depreciation
- Subtract the accrued depreciation
- Add the value of the land to the value of the improvements
5 steps to preparing a cost approach analysis
The primary method for determining the new construction costs of improvements needed for the 5 steps to preparing a cost approach analysis.
Determines the current cost of an acceptably similar copy.
Replacement Cost
Multiply cost-per-square foot of building a comparable by the square footage of a new building to estimate construction costs.
Square foot method
An approach to estimate property value which estimates the present value of future net income of income-producing properties through the process of capitalization. Based on the principle of anticipation.
The income approach
Converts future income projections into current value
Capitalization
The rate of return on the cost of investment
Capitalization rate
The maximum rental income at 100% occupancy.
Potential gross income
The actual income after subtracting vacancies and rent collection losses.
Effective gross income
What’s left of the gross income after subtracting all of a property’s operating expenses (except tax).
Net operating income
Method of estimating value often used for one-to-four unit residential rentals or for small commercial and industrial sites.
Gross rent multiplier, gross income multiplier
The economic climate and the supply of properties that are in demand.
Overall market conditions.
The result of defects caused by negative actions of past owners.
Stigmatised or psychologically impacted property
