Chapter 16 Appraising and Estimating Market Value Vocab Flashcards
Transferability:
How readily or easily title or rights to real estate can be transferred.
Anticipation:
The benefits a buyer expects to derive from a property over a holding period.
Substitution:
An appraisal principle that holds that a buyer will pay no more for a property than the buyer would pay for an equally desirable and available substitute property. Forms the foundation for the sales comparison approach to value.
Contribution:
The increment of market value added to a property through the addition of a component or improvement to the property. Not to be confused with the cost of the component.
Highest and Best Use:
A theoretical use of a property that is legally permissible, physically possible, financially feasible, and maximally productive, usually in terms of net income generation.
Conformity:
This principle holds that a property’s maximal value is attained when its form and use are in tune with surrounding properties and uses.
Progression:
If a property is surrounded by properties with higher values, its value will tend to rise.
Regression:
If a property is surrounded by properties with lower values, its value will tend to fall.
Assemblage:
A combining of contiguous parcels of real estate into a single tract, performed with the expectation that increased value will result.
Subdivision:
The division of a single property into smaller properties can also result in a higher total value. For instance, a one-acre suburban site appraised at $50,000 may be subdivided into four quarter-acre lots worth $30,000 each. This principle contributes significantly to the financial feasibility of subdivision development.
Reproduction Value:
The value based on the cost of constructing a precise duplicate of the subject property’s improvements, assuming current construction costs.
Replacement Value:
The value based on the cost of constructing a functional equivalent of the subject property’s improvements, assuming current construction costs.
Market Value:
An opinion of the price at which a willing seller and buyer would trade a property at a given time, assuming a cash sale, reasonable exposure to the market, informed parties, marketable title, and no abnormal pressure to transact.
Appraisal:
An opinion of value of a property developed by a professional and disinterested third party and supported by data and evidence.
Broker’s Opinion of Value:
An estimate of a property’s value rendered by a party who is not necessarily licensed, objective, or qualified. The estimate may not be a complete appraisal.
Reconciliation:
An appraiser’s weighted blending of the results of different approaches to value into a final value estimate.
Sales Comparison Approach:
A method of appraising property that relies on the principle that a property is generally worth what other, similar properties are worth
Comparable:
A property having similar characteristics to a subject property in an appraisal. The value or sale price of the comparable is used to estimate the value of the subject.
Comparative Market Analysis:
(CMA) A method used by brokers and salespeople for estimating the current value of a property using sale price data from similar properties. Not to be confused with a bona fide appraisal performed by a licensed appraiser.
Cost Approach:
A method for determining value that takes into account the cost of the land and the replacement or reproduction cost of the improvements net of estimated depreciation.
Depreciation:
- A non-cash expense taken against the income of investment property that allows the owner to recover the cost of the investment through tax savings. 2. A loss of value to improved property.
Income Capitalization Approach:
A method of appraising the value of a property by applying a rate of return to the property’s net income.
Net Operating Income:
The amount of pre-tax revenue generated from an income property after accounting for operating expenses and before accounting for any debt service
Capitalization Rate:
The rate of return on capital an investor will demand from the investment property, or the rate of return that the property will actually produce.
Gross Rent Multiplier:
A shortcut method for estimating the value of an income property. The procedure involves multiplying the property’s gross monthly rent times a multiplier that reflects the ratio between gross monthly rent and sale price that is typical for similar properties in the area.
Gross Income Multiplier:
A shortcut method for estimating the value of an income property. The procedure involves multiplying the property’s gross annual income times a multiplier that reflects the ratiobetween gross annual income and sale price that is typical for similar properties in the area.
Financial Institutions Reform, Recovery and Enforcement Act:
In 1989, Congress passed the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in response to the savings and loan crisis. This act included provisions to regulate appraisal.
