Chapter 15 - Estimating Real Property Value

Question 1

Appraisal

Answer 1

A supported, defended estimate of the value of property rights as of a specified date.

Question 2

Assemblage

Answer 2

The combining of two or more adjoining properties into one tract; the process of consolidating properties.

Question 3

Cost-depreciation approach

Answer 3

A method for estimating the market value of a property based on the cost to buy the site and to construct a new building on the site, less depreciation.

Question 4

Curable depreciation

Answer 4

When a building component has been added or repaired and the owners are able to get their money back in added value.

Question 5

Depreciation

Answer 5

Loss in value caused by things such as wear and tear, poor design, or the structure’s surroundings (proximity).

Question 6

Economic life

Answer 6

The total estimated time in years that an improvement will add value; useful life.

Question 7

Effective age

Answer 7

The age indicated by a structure’s condition and utility.

Question 8

Effective gross income (EGI)

Answer 8

The resulting amount when vacancy and collection losses are subtracted from potential gross income.

Question 9

Federally related transaction

Answer 9

Any real estate-related financial transaction that a federal financial institutions regulatory agency has either contracted for, or regulates, and requires the services of an appraiser.

Question 10

Goodwill

Answer 10

An intangible asset arising from the reputation of a business, often reflected in the sale price; may be considered in a market value appraisal if specifically identified in the report.

Question 11

Gross income multiplier (GIM)

Answer 11

The ratio between a property’s gross annual income and its selling price.

Question 12

Gross rent multiplier (GRM)

Answer 12

The ratio between a property’s gross monthly rental income and its selling price.

Question 13

Highest and best use

Answer 13

The most profitable, legal way that a property can be utilized.

Question 14

Income capitalization approach

Answer 14

A method for estimating the market value of a property based on the present worth of future income that the property can be expected to generate.

Question 15

Incurable depreciation

Answer 15

When a building component has been added or repaired but the owners are unable to get their money back in added value.

Question 16

Investment value

Answer 16

The worth of a property to a particular investor based on his or her desired rate of return, risk tolerance.

Question 17

Market value

Answer 17

The most probable price a property will bring in a competitive and open market with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

Question 18

Net operating income (NOI)

Answer 18

The resulting amount when all operating expenses are subtracted from effective gross income.

Question 19

Overimprovement

Answer 19

When an owner invests more money in a structure than he or she may reasonably expect to recapture.

Question 20

Plottage

Answer 20

The added value as a result of combining two or more properties into one large parcel.

Question 21

Potential gross income (PGI)

Answer 21

The total annual income a property would produce with 100 percent occupancy and no collection or vacancy losses.

Question 22

Principle of substitution

Answer 22

Principle which states that a prudent buyer or investor will pay no more for a property than the cost of acquiring an equally desirable substitute property.

Question 23

Progression

Answer 23

The principle that states that the value of an inferior property is enhanced by its association with superior properties of the same type.

Question 24

Reconciliation

Answer 24

The process of weighting the estimates of value derived from the sales comparison, cost, and income approaches to arrive at a final estimate of market value; also the process of weighted averaging used in the sales comparison approach to bring the adjusted values of several comparable properties into a single estimate of value.

Question 25

Regression

Answer 25

The principle that states that the value of a superior property is adversely affected by its association with an inferior property of the same type.

Question 26

Replacement cost

Answer 26

The amount of money required to replace a structure having the same use and functional utility as the subject property, but using modern, available, or updated materials.

Question 27

Reproduction cost

Answer 27

Amount required to duplicate the property exactly.

Question 28

Sales comparison approach

Answer 28

A method for estimating the market value of a property by comparing similar properties to the subject property.

Question 29

Situs

Answer 29

People’s preferences, both physical and economic, for a certain location owing to factors such as weather, job opportunities, and transportation facilities.

Question 30

Subject property

Answer 30

The property being appraised.

Question 31

Transaction value

Answer 31

The loan amount in most appraisal assignments.

Question 32

Vacancy and collection losses

Answer 32

The expected income loss that will result from occasional turnover of tenants and periodic vacancies as well as the likelihood that not all of the rental income will be collected.