Appraisal Flashcards
Gross area
the area of a building under the roof - includes unfinished areas
Plottage
the increased value resulting from the combining of several parcels of land into one larger tract
USPAP
Uniform Standards of Professional Appraisal Practice - appraiser’s rules
Income Approach
an appraisal used to determing value of property that produces income. AKA cap method. (net annual income = rate of return x market value)
Value
an estimate of future benefits to be derived from a property
Principle of Anticipation
pricing today based on the expectation of future appeal and/or benefits
BOV
broker’s opinion of value - similar to CMA but used by a relocation firm, bank or attorney - also called BPO, broker’s price opinion
Setback
the amount of space required between the lot line and the building line
D.U.S.T.
The four basic characteristics of value - demand, utility, scarcity, transferability
Effective Age
the condition of a property measured in years
Principle of Contribution
the value of a part is determined by its contribution to the total value of the property rather than the cost of the part
Physical Deterioration
depreciation due to ordinary wear and tear - curable - little impact on an appraisal
M.A.I.
Member, Appraisal Institute - a designation earned by a licensed appraiser
Economic Obsolescence
depreciation due to external factors. Also called environmental obsolescence. Like when someone builds an airport across from your dream home.
Capitalization rate
Cap rate, or the annual rate of return on income producing property
Reproduction cost
The cost to exactly duplicate a building
Life Cycle
the stages of growth and development of a community - grow, stabilize, decline, and revitalize
Principle of Progression
Higher valued properties in the neighborhood lead to an increase in value of a subject property
Straight Line Method
depreciation of equal annual installment amounts
GRM (gross rent multiplier)
a factor based on location and rent - a price per monthly rent used to give an initial estimate of value for a residential rental property
Principle of Increasing and Decreasing Returns
invest in property whenever each dollar invested will return a dollar or more of increased value and stop when each dollar returns less. Do not over improve!
Comparable
a recently sold property similar to a property being valued
Module
a unit of prefab housing - offsite construction
square footage
the finished space of a structure measured by the exterior walls - it never includes unfinished space like garages or attics
Capitalization
the conversion of income into an indication of value
Principle of Substitution
No person is justified in paying more for a property when a similar property can be purchased for less - sets an upper limit on price
Appraisal
an opinion of value
Reconciliation
The final step in the appraisal process using weighted averages to determine an exact number
Principle of Regression
Lower valued properties in the neighborhood lead to a decline in value of a subject property
CMA
comparative market analysis - a range of value for a property provided by a licensee to help a seller determine a realistic price
Cost
an estimate of past expenditures
Chronological Age
the actual age of a property
Principle of Change
Appraisers must make adjustments for changes in market conditions and time
Price
what one must pay for a property - usually very close or equal to market value
Assemblage
combining several parcels of land into one large tract
Highest and Best use
the legal use of property giving the greatest return in money or amenities
Cost Approach
an appraisal used to determine the value of unique property, with no comps and no income. (Land + Building Replacement Cost - Depreciation = Value)
Deferred Maintenance
postponed maintenance on a property that results in increased physical depreciation (wear and tear)
Principle of Competition
increased competition results in decreased profits for current providers
Functional Obsolescence
usually curable; property needs to be updated. Depreciation due to factors in the property that do not meet the expectations of buyers
FIRREA (Financial Institutions Reform, Recovery and Enforcement Act)
A Federal law requiring use of state licensed/certified appraisers to perform any appraisal used in conjunction with any federally related transaction involving property valued at $250,000 or more
Net Annual Income
yearly gross rents less gross expenses
Market Value
the price a willing seller/buyer will pay when not under exceptional pressure; most probably price (MPP)
Collateral
something of value pledged as security for a loan
GIM
a factor based on location and rent - a price per annual rent used to give an initial estimate of value for a commercial property
Principle of Conformity
maximum value is found when there is a reasonable degree of similarity or homogeneity
Replacement Cost
the cost to build a building of similar size and purpose using today’s methods and materials
Depreciated Value
original cost less the depreciation
Up and Coming neighborhood
a neighborhood in the revitalization stage of the life cycle
Market Data Approach
an appraisal used primarily on residential properties; it involves comparing the subject property to recent sales to determine a value
