Chapter 11 - Valuation & Appraisal Vocabulary Flashcards
Chap 11 Vocab
Accrued
An accumulation over a period of time.
accrued depreciation
The difference between the cost to replace the property and the property’s current appraised value.
actual age
(1) The chronological age of a building. (2) Real age of a building.
Amenity
A tangible or intangible feature that enhances or adds value to real estate.
Amenity Purchaser
A person who values a property based on its ability to fulfill his specific business needs or use, unlike investors who value a property based primarily on its investment return.
Anticipation
An economic principle that says value is created by the expectation of future benefits, such as profit on resale, pleasure, tax shelter, production, income, etc. Anticipation is the foundation of the income approach.
Appraisal
A professional estimate or opinion of the value of a piece of property (parcel of land), as of a certain date, that’s supported by objective data.
Appraisal Foundation
Nonprofit organization recognized as the authority for professional appraisal standards. Appraisal Management Company (AMC) An entity that, for compensation, acts as a third party intermediary by contracting with independent real estate appraisers to perform appraisals for lenders.
appraisal process
An orderly systematic method to arrive at an estimate of value.
appraisal report
A written statement where an appraiser gives his or her opinion of value.
Appraiser
A person who estimates the value of property, especially an expert qualified to do so by education and experience.
Arm’s Length Transaction
A transaction that occurred under typical conditions in the marketplace, with each party acting in his or her own best interest. and are under no undue influence or pressure from other parties.
Assemblage
The act of combining two or more parcels of land into one larger parcel.
Assessed Value
The value placed on a property by a taxing authority for the purpose of taxation. With real estate, this value is usually a fraction of true value.
assessment
The valuation of property for the purpose of levying a tax or the amount of the tax levied.
Assessor
The official who has the responsibility of determining assessed values.
blighted area
A section of a city, generally the inner city, where a majority of the buildings are run-down, and the property values are extremely low.
book value
The current value (for accounting purposes) of a property, calculated as the original cost, plus capital improvements, minus accumulated or accrued depreciation.
Buyer’s Market
A situation in the housing market when there are many homes available for sale, but few buyers.
change, principle of
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.
Comparables
Recently sold properties with similar characteristics (size, room count, design, utility, etc.) that are in close proximity to the property being appraised. Also called Comps. – (1) Sales which have similar characteristics as the subject property and are used for analysis in the appraisal process. (2) Commonly called comps, they are recent selling prices of properties similarly situated in a similar market.
Comparative Market Analysis (CMA)
A method of determining the approximate market value of a home by comparing the subject property to similar homes that have sold, are presently for sale, or did not sell in a given area. Also called Competitive Market Analysis. – A comparison analysis that real estate brokers use while working with a seller to determine an appropriate listing price for the seller’s house.
comparison approach
(1) A real estate comparison method which compares a given property with similar or comparable surrounding properties. (2) Also called market comparison.
competition, principle of
Holds that profits tend to breed competition and excess profits tend to breed ruinous completion.
Comps
A term used by real estate agents and appraisers to mean comparable properties.
Conformity
The principle that says a particular property achieves its maximum value when surrounded by properties similar in style, function, and utility. Also called Homogeneity. – When land uses are compatible and homes are similar in design and size, the maximum value is realized.
Contract Rent
What tenants are actually paying in rent, as stated in the terms of the lease.
Contribution
The principle that a specific item or feature of a property is worth only what it actually contributes in value to that parcel of real estate. – The worth of an improvement and what it adds to the entire property’s market value, regardless of the actual cost of the improvement. Holds that maximum values are achieved when the improvements on a site produce the highest (net) return, commensurate with the investment.
corner influence
Commercial properties benefit from more exposure on a corner lot.
corner lot
A lot found at the intersection of two streets. It may be desirable because of its accessibility, but may also be noisy and expensive to maintain because of the increased frontage.
Correlation
(1) A step in the appraisal process involving the interpretation of data derived from the three approaches in value (cost, market and income) leading to a single determination of value. (2) Also frequently referred to as reconciliation.
Cost
The amount needed to develop, produce, or build something. – The expenses in money, labor, material or sacrifices in acquiring or producing something.
Cost Approach
An appraisal method that estimates the value of real estate by establishing the cost new of replacing or reproducing the improvements, minus depreciation, plus the value of the site. – An appraisal method whereby a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting the estimated accrued depreciation, then adding the market value of the land.
Cubic Feet
Length x Width x Depth. Cubic Feet. Divide cubic feet by 27 to find cubic yards. – foot method - Similar to the square - foot method, except that it takes height as well as area into consideration. The cubic contents of buildings are compared instead of just the square footage.
cul-de-sac lot
A lot found on a dead-end street with the same way for ingress and egress.
Curable Depreciation
Depreciation is considered curable if the cost of the repair is less than what the repair adds to the value of property. – Items of physical deterioration and functional obsolescence which are customarily repaired or replaced by a prudent property owner.
Days on Market (DOM)
The time period between listing a property and either selling or removing it from the market.
deferred maintenance
Negligent, postponed, care of a building.
demand
The desire to buy or obtain a commodity.
Depreciation
- The decrease in value to real property improvements caused by deterioration or obsolescence. 2. A loss in value as an accounting procedure for use as a tax deduction for income tax purposes. Also called Cost Recovery. – (1) Loss in value from any cause. (2) A tax advantage of ownership of income property.
depth table
A statistical table that may be used to estimate the value of the added depth of a lot.
DUST
The mnemonic for Demand, Utility, Scarcity, and Transferability.
economic age
Age of a building determined by its condition and usefulness.
Economic Base
The main business or industry in an area that supports and sustains the community.
Economic Life
The time during which a building can be used for its intended purpose and generate more income than is paid out for operating expenses. Also called Useful Life. – (1) The estimated period over which a building may be profitably used. (2) Also known as effective life.
Economic Obsolescence
A loss in value due to factors outside the subject property, such as changes in competition or surrounding land use. Also called External Obsolescence. – (1) A type of depreciation occurring because of forces outside the property. (2) Changes in the social or economic make-up of the neighborhood, zoning changes, over-supply of homes, under-supply of buyers, recession or legislative restrictions can cause economic obsolescence.
Economic Rent
The amount of rental which a building would receive, if set by the market, as opposed to contract rent set by the lease. – What a leased property would be expected to rent for under current market conditions if the property were vacant and available for rent.
Effective Age
The age of a structure based on the actual wear and tear that the building shows from physical, functional or external obsolescence; not necessarily the structure’s actual age.
Effective Date
The date for which value was established when doing an appraisal.
effective demand
The desire coupled with purchasing power.
Effective Gross Income
The anticipated income resulting from the estimated potential gross income from a rental property less an allowance for vacancy and collection losses. – The amount of net income that remains after the deduction from gross income of vacancy and credit losses.
effective life
The estimated period over which a building may be profitably used.
external obsolescence
When something outside of a property and outside of the control of a property owner makes it less desirable. Also called Economic Obsolescence. – Any influence negatively affecting a property’s value that falls outside of the specific property site (i.e., a property located under an airport flight pattern).
flag lot
A lot that looks like a flag on a pole. The pole represents the access to the site, which is usually located to the rear of another lot fronting a main street.
front foot
The width of a property on the side facing the street.
Frontage
The length of a property along a street. – The dimension across the access side of a parcel of land. The access could be a road, railroad tracks, or water. When referring to lot size, frontage is the first number. Also called Front Foot.
Functional Obsolescence
When an improvement is less desirable because of something inherent or lacking in the design. – A type of depreciation stemming from poor architectural design, lack of modern facilities, out-of-date equipment, changes in styles of construction, or changes in utility demand.
