Ch. 16 Appraisal Flashcards
accrued depreciation
loss in value, resulting from the property’s physical deterioration, external depreciation, and functional obsolescence
anticipation
value is created by the expectation that certain events will occur
appraisal
an opinion of value based on supportable evidence and approved methods
assemblage
the process of merging two separately owned lots under one owner
Broker’s price opinion (BPO)
less-expensive alternative of evaluating property that is often used by lenders working with home equity lines, refinancing, portfolio management, loss mitigation, and collections.
capitalization rate
“cap” rate-determined by comparing the relationship of net operating income with the sales price of similar properties that have sold in the current market
conformity
maximum value is created when a property is in harmony with its surroundings
cost approach
the process of estimating the value of a property by adding to the estimated land value of the appraiser’s estimate of the reproduction or replacement cost of the bldg, less depreciation
depreciation
in a real estate appraisal, depreciation is loss in value for any reason considered curable or incurable, depending on whether it can be corrected economically
external obsolescence
If depreciation is caused by negative factors no the subject property such as environmental, social, or economic forces its always incurable.The loss in value cannot be reversed by spending money on the property, ex close proximity to a polluting factory
functional obsolescence
obsolescence means a loss in value from the market’s response to the item/outmoded or unacceptable physical or design features that are no longer considered desirable by purchases are considered curable if they can be replaced and redesigned, A four-bedroom home w/only one bathroom is likely to suffer from incurable functional obsolescence
income approach
value is based on the present value of the right to future income, assumes that the income generated by a property will determine the property’s value
market data approach
aka sales comparison approach, estimate of value obtained by comparing property being appraised w/recently sold comparable properties
market value
considered the most probably price that a property should bring in a competitive and open market under all conditions requisite to a fair sale/an opinion of value based on an analysis of data
net operating income (NOI)
Deduct the Annual operating expenses from the effective gross income to get the annual NOI
physical deterioration
a CURABLE item in one in need of repair such as painting, an item INCURABLE is caused by physical wear and tear and its correction would not be economically feasible such as an extensive crack in the foundation
plottage
The individual value of two adjacent properties may be greater if they are combined in an assemblage than if each is sold separately
progression
An appraisal principle that the value of a lesser-quality property is favorably affected by the presence of a better-quality property
reconciliation
act of analyzing and effectively weighting the findings from the three approaches, an appraiser explains not only the appropriateness of each approach but also the relative reliability of the data within each approach in line with the type of value sought
regression
the worth of a better-quality property is adversely affected by the presence of a lesser-quality property
sales comparison approach
also known as the market data approach, value is obtained by comparing the property being appraised
substitution
the maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property
supply and demand
when the supply of similar properties increases, their value decreases and when demand for such properties increases, their value increases
value
DUST- Demand, Utility, Scarcity, Transferability value in the real estate market is monetary worth based on desirability
Uniform Standards of Professional Appraisal Practice (USPAP)
Licensed or certified appraisers performing federally related real estate transactions (a value of greater than $250,000) must comply w/the Uniform Standards of Professional Appraisal Practice (USPAP)
Market Price
a property’s asking, offer, or sales price
economic life
the easiest but least precise way to determine depreciation is the straight-line method called the economic age-life method, the period during which it is expected to remain useful for its original intended purpose
