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.
Effective Age
The conditional age of a building.
Economic Life
The amount of years a building can produce an income.
Remaining Economic Life
Equals the economic life minus the effective
age.
Straight Line Depreciation
A method of depreciation under which
improvements are depreciated at a constant rate throughout the estimated
useful life of the improvement.
Functional Obsolescence
A loss of value due to adverse factors from
within the structure which affect the utility of the structure, value and
marketability.
Economic Obsolescence
A loss in value due to factors away from the
subject property but adversely affecting the value of the subject property.
Physical Obsolescence
The loss in value due to the actual wearing out of
the improvements.
Income Approach
One of the three methods of the appraisal process
generally applied to income producing property, and involves a three-step
process – (1) find net annual income, (2) set an appropriate capitalization
rate or “present worth” factor, and (3) capitalize the income dividing the net
income by the capitalization rate.
Gross Income
Total income from property before any expenses are
deducted.
Effective Gross Income
The amount of income produced by a piece of
property, plus miscellaneous income, less vacancy costs and collection
losses.
Net Operating Income
The annual income generated by an incomeproducing property after taking into account all income collected from
operations, and deducing all expenses incurred from operations.
Capitalization Rate
The rate of interest which is considered a reasonable
return on the investment, and used in the process of determining value
based upon net income.
Capitalization Rate = NOI / Purchase Price
The minimum interest rate set by the Federal Reserve for lending to other banks is known as the…?
Discount Rate
The rate at which member banks charge each other for borrowing short-term money is known as the…?
Federal Funds Rate
Which of the following is a means by which the Federal Reserve controls the money supply…?
Reserve requirement, Discount rate, Bond market
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 is known as a/an…?
Appraisal
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 is known as a/an…?
Appraiser
The present worth of future benefits arising out of ownership to typical users/investors is referred to as…?
Value
The supply of willing and able buyers in the marketplace or lack thereof is referred to as…?
Demand
The ability to give satisfaction and/or excite desire for possession is known as…?
Utility
This holds that the maximum of value is realized when a reasonable degree of homogeneity of improvements is present…?
Principle of Conformity
When a component part of a property is valued in proportion to its contribution to the value of the whole, it is referred to as this principle…?
Principle of Contribution
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 is referred to as…?
Over Improvement
In appraising, this is 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 Supply and Demand
This 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….?
Principle of Substitution
This is 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…?
Highest and Best Use
This refers to an improvement which, because of its deficiency in size or cost, is not the highest and best use of the site…?
Under Improvement
When a property is “over improved” relative to other surrounding properties in the area that are of lesser value, it is referred as the…?
Law of Regression
Properties listed above market value typically take the longest to sell…?
True
This holds that it is the future, not the past, which is of prime importance in estimating value…?
Principle of Change
This affirms that value is created by anticipated benefits to be derived in the future…?
Principle of Anticipation
This is 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…?
Sales Comparison Approach
This is one of the three methods in the appraisal process 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…?
Cost Approach
The ability to deduct expenses on improvements made to income producing property is referred to as…?
Depreciation
The economic life of a building minus its effective age is known as…?
Remaining Economic Life
The depreciation for a residential property is how many years…?
27.5 years
A loss of value due to adverse factors from within the structure which affect the utility of the structure, value and marketability is known as…?
Functional Obsolescence
A loss in value due to factors away from the subject property but adversely affecting the value of the subject property is known as…?
Economic Obsolescence
The loss in value due to the actual wearing out of the improvements is known as…?
Physical Obsolescence
This is one of the three methods of the appraisal process generally applied to income producing property, and involves a three-step process – (1) find net annual income, (2) set an appropriate capitalization rate or “present worth” factor, and (3) capitalize the income dividing the net income by the capitalization rate…?
Income Approach
The rate of interest which is considered a reasonable return on the investment, and used in the process of determining value based upon net income is known as…?
Capitalization Rate
Capitalization Rate is equal to…?
NOI / Purchase Price
