Chapter 16 Flashcards
What is the “Price” in an appraisal?
The amount actually paid in the real estate transaction
In an appraisal, what is the liquidation value?
It is the value of a failing business that is not expected to continue.
Amount that remains after ALL assets of a business are sold and debts are paid.
What is the market value of a property?
The most probably price a property would sell at
What assumptions are made when determining the market value of a property?
Property has been exposed to the market for a reasonable amount of time
Buyer and seller are informed and acting on self-interest
Neither party is acting under duress
Seller has the ability to convey a marketable title
Payment is in US$ or equivalent to cash
What is the principle of substitution?
No one would pay more for a property than what is would cost to buy a substitute property (another property just like it)
If net operating income remains the same, and capitalization rate increases, what happens to the value of the home?
it decreases
What is the highest and best use analysis?
Determines if the property is currently being used at its highest potential to get the most value out of it
What is reproduction cost?
The amount it will cost to rebuild the exact same structure at the current construction prices with the same materials
This is used in historic properties
Which approach is only approach that is used to estimate the value of special-purpose properties such as schools, churches, libraries, court house?
The cost-depreciation approach
What is functional obsolecense?
When a home has been over-improved.
It was made too functionally specific for the current owner, so it will not sell in the market for the amount that was invested
What is external obsolescence?
Loss of value caused by a factor beyond the boundaries of the property which the owner is unable to remedy
What is the economic age-life method?
Method used by appraisers to estimate the amount of accrued depreciation
What is the effective age of a property?
the percentage of the total life of the property that was lost by depreciation
How do you calculate the total depreciation rate for a time period?
Divide the effective age (current age the building appears to be) by the total economic life (life expectancy of the building)
How do you calculate an effective gross income?
Subtract the vacancy and collections losses from the potential gross income (how much money the property can produce)
Potential income - vacancies = income
