Chapter 14 - Real Estate Appraisal

Question 1

An estimate of the quantity, quality, or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.

Answer 1

appraisal

Question 2

The rate of return a property will produce on the owner’s investment.

Answer 2

capitalization rate

Question 3

A comparison of the prices of recently sold homes that are similar to the subject home in terms of location, style, and amenities. Compiled by a broker or a sales agent to assist a seller in determining a listing price.

Answer 3

comparative market analysis (CMA)

Question 4

An estimate of value based on current construction costs, less depreciation, plus land value. Contrast with the income approach to value and the sales comparison approach to value.

Answer 4

cost approach value

Question 5

1. In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence, and external obsolescence.
2. In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.

Answer 5

depreciation

Question 6

The period of time during which a structure may reasonably be expected to perform the function for which it was designed or intended.

Answer 6

economic life

Question 7

Reduction in property’s value caused by factors outside the subject property, such as social or environmental forces, also called economic or locational obsolescence.

Answer 7

external obsolescence

Question 8

A loss to value to improved real property due to inadequate, outmoded, or inappropriate imporovements.

Answer 8

functional obsolescence

Question 9

The ratio used to convert annual income into market value in appraising industrial and commercial properties.

Answer 9

gross income multiplier (GIM)

Question 10

A figure used as a multiplier of the gross monthly rental income of a property to produce an estimate of the property’s value.

Answer 10

gross rent multiplier (GRM)

Question 11

That possible use of land that would produce the greatest return and thereby develop the highest land value. The optimum use of a sit, as used in appraisal.

Answer 11

highest and best use

Question 12

The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.

Answer 12

income approach

Question 13

A reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear.

Answer 13

physical deterioration

Question 14

The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.

Answer 14

plottage value

Question 15

The final step in the appraisal process, in which the appraiser weighs the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final estimate of market value for the subject property.

Answer 15

reconciliation

Question 16

The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original.

Answer 16

replacement cost

Question 17

The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original.

Answer 17

reproduction cost

Question 18

The process of estimating the value of a property by examining and comparing actual sales of comparable properties.

Answer 18

sales comparison approach

Question 19

An appraisal principle stating that the maximum value of property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution.

Answer 19

substitution

Question 20

The amount of goods or services considered to be a fair and suitable equivalent for something else.

Answer 20

value