Chapter 15 - Estimating Real Property Value Flashcards
Appraisal
A supported, defended estimate of the value of property rights as of a specified date.
Assemblage
The combining of two or more adjoining properties into one tract; the process of consolidating properties.
Cost-depreciation approach
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.
Curable depreciation
When a building component has been added or repaired and the owners are able to get their money back in added value.
Depreciation
Loss in value caused by things such as wear and tear, poor design, or the structure’s surroundings (proximity).
Economic life
The total estimated time in years that an improvement will add value; useful life.
Effective age
The age indicated by a structure’s condition and utility.
Effective gross income (EGI)
The resulting amount when vacancy and collection losses are subtracted from potential gross income.
Federally related transaction
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.
Goodwill
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.
Gross income multiplier (GIM)
The ratio between a property’s gross annual income and its selling price.
Gross rent multiplier (GRM)
The ratio between a property’s gross monthly rental income and its selling price.
Highest and best use
The most profitable, legal way that a property can be utilized.
Income capitalization approach
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.
Incurable depreciation
When a building component has been added or repaired but the owners are unable to get their money back in added value.
Investment value
The worth of a property to a particular investor based on his or her desired rate of return, risk tolerance.
Market value
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.
Net operating income (NOI)
The resulting amount when all operating expenses are subtracted from effective gross income.
Overimprovement
When an owner invests more money in a structure than he or she may reasonably expect to recapture.
Plottage
The added value as a result of combining two or more properties into one large parcel.
Potential gross income (PGI)
The total annual income a property would produce with 100 percent occupancy and no collection or vacancy losses.
Principle of substitution
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.
Progression
The principle that states that the value of an inferior property is enhanced by its association with superior properties of the same type.
Reconciliation
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.
Regression
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.
Replacement cost
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.
Reproduction cost
Amount required to duplicate the property exactly.
Sales comparison approach
A method for estimating the market value of a property by comparing similar properties to the subject property.
Situs
People’s preferences, both physical and economic, for a certain location owing to factors such as weather, job opportunities, and transportation facilities.
Subject property
The property being appraised.
Transaction value
The loan amount in most appraisal assignments.
Vacancy and collection losses
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.
