Chapter 10 Flashcards
Federal Reserve System
The federal banking system of the United States
under the control of central board of governors (Federal Reserve Board)
involving a central bank in each of twelve geographical districts with broad
powers in controlling credit and the amount of money in circulation.
Discount Rate
The minimum interest rate set by the Federal Reserve for
lending to other banks.
Federal Funds Rate
The rate at which member banks charge each other
for borrowing short-term money.
Appraisal
A written statement, independently and impartially prepared by
a qualified appraiser setting forth an opinion in a federally related
transaction as to the market value of an adequately described property as
of a specific date. It is supported by the presentation and analysis of
relevant market information.
An estimate of the value of property resulting from an analysis of facts
about the property. An opinion of value.
Appraiser
One qualified by education, training and experience who is
hired to estimate the value of real and personal property based on
experience, judgment, facts, and use of formal appraisal processes.
Value
Present worth of future benefits arising out of ownership to typical
users/investors.
Fair Market Value (FMV)
This is the amount of money that would be paid
for a property offered on the open market for a reasonable period of time
with both buyer and seller knowing all the uses to which the property could
be put and with neither party being under pressure to buy or sell.
Objective Value
What something is worth when there is a reasonably
prudent seller and a reasonably prudent, willing and able buyer, and all else
remains equal without coercion and transacted at arm’s length.
Subjective Value
What something is worth to an individual person without
regard to market conditions
Demand
The supply of willing and able buyers in the marketplace or lack
thereof.
Utility
The ability to give satisfaction and/or excite desire for possession.
An element of value.
Scarcity
A lack of supply.
Principle of Conformity
Holds that the maximum of value is realized when
a reasonable degree of homogeneity of improvements is present. Use
conformity is desirable, creating and maintaining higher values.
Over-Improvement
An improvement which is not the highest and best use
for the site on which it is placed by reason of excess size and cost.
Under-Improvement
An improvement which, because of its deficiency in
size or cost, is not the highest and best use of the site.
Principle of Contribution
A component part of a property is valued in
proportion to its contribution to the value of the whole. Holds that
maximum values are achiever when the improvements on a site produce
the highest (net) return, commensurate with the investment.
Principle of Supply and Demand
In appraising, a valuation principle
stating that market value is affected by the intersection of supply and
demand forces in the market as of the appraisal date.
Principle of Substitution
Affirms that the maximum value of a property
tends to be set by the cost of acquiring an equally desirable and valuable
substitute property, assuming no costly delay is encountered in making the
substitution.
Highest and Best Use
An appraisal phrase meaning that use which at the
time of an appraisal is most likely to produce the greatest net return to the
land and/or buildings over a given period of time; that use which will
produce the greatest amount of amenities or profit. This is the starting
point for appraisal.
Principle of Conformity
Value is created when properties tend to be
similar in a particular neighborhood.
Law of Regression
Where a property is “over improved” relative to other
surrounding properties in the area that are of lesser value.
Law of Progression
The worth of a lesser valued residence tends to be
enhanced by association with higher valued residences in the same area.
Principle of Change
Holds that it is the future, not the past, which is of
prime importance in estimating value. Change is largely the result of cause
and effect.
Principle of Anticipation
Affirms that value is created by anticipated
benefits to be derived in the future.
Sales Comparison Approach
One of the three major valuation methods,
which compares a subject property’s characteristics with those of
comparable properties which have recently sold in similar transactions.
Cost Approach
One of three methods in the appraisal process. An analysis
in which a value estimate of a property is derived by estimating the
replacement cost of the improvements, deducting therefrom the estimated
accrued depreciation, then adding the market value of the land.
Depreciation
The ability to deduct expenses on improvements made to
income producing property.
Chronological Age
The actual age of a building.
