Chapter 16 - Learning Objectives & Key Terms

Question 1

Appraisal

Answer 1

An estimate of the value of property resulting from an analysis of facts about the property. An opinion of value.

Question 2

Assemblage

Answer 2

The joining of two or more connecting properties into one tract.

Question 3

Automated Valuation Models

Answer 3

A term for services that use mathematical modeling combined with databases of existing properties and transactions to calculate real estate values.

Question 4

Comparative Market Analysis (CMA

Answer 4

An analysis of the competition in the marketplace that a property will face upon sale attempts.

Question 5

Cost Depreciation Approach

Answer 5

A system for estimating the market value of property based on the cost to buy the site, construct a new building on the site, but taking into account depreciation.

Question 6

Curable

Answer 6

A defect that can be cured with a resulting added value

Question 7

Depreciation

Answer 7

The lowering of the price or estimated value.

Question 8

Economic Life

Answer 8

The period of time that a property may be expected to be profitable or productive.

Question 9

Federally Related Transaction

Answer 9

Any sale transaction that involves a federal agency in either the primary or secondary mortgage market.

Question 10

Gross Income Multiplier (GIM)

Answer 10

Method of estimating the market value of commercial and industrial properties.

Question 11

Gross Rent Multiplier (GRM)

Answer 11

Method of estimating the market value of income-producing residential property.

Question 12

Highest And Best Use

Answer 12

An appraisal phrase meaning that use which at the time of an appraisal is most likely to produce the greatest net return to the land and/or buildings over a given period of time; that use which will produce the greatest amount of profit. This is the starting point for an appraisal.

Question 13

Income Approach

Answer 13

An appraisal method applied to income producing properties, which involves a three-step process. First, the appraiser must find the net annual income. Second, an appropriate capitalization rate or “present worth” factor must be set. Finally, the appraiser must capitalize the income by dividing the net income by the capitalization rate.

Question 14

Incurable

Answer 14

An appraisal term where the cost to correct an external or functional obsolescence of an improvement is greater than the value added by the cure.

Question 15

Market Value

Answer 15

The highest price in terms of money which a property will bring in a competitive and open market and under all conditions required for a fair sale, i.e., the buyer and seller acting prudently, knowledgeably and neither affected by undue pressures.

Question 16

Over-improvement

Answer 16

An addition or change to property that exceeds what could be justified by local conditions.

Question 17

Plottage

Answer 17

Combination or consolidation of adjacent lots into one larger lot.

Question 18

Principle of Substitution

Answer 18

Affirms that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute property, assuming no costly delay is encountered in making the substitution.

Question 19

Principle of Progression

Answer 19

A principal of appraisal that states that superior properties of the same type enhance the value of an inferior property.

Question 20

Reconciliation

Answer 20

The final stage in the appraisal process in which the appraiser reviews the data and estimates the subject property’s value.

Question 21

Regression

Answer 21

A principal of appraisal that states that inferior properties adversely affect the value of a better property of the same type.

Question 22

Replacement Cost

Answer 22

The amount of money required to replace a structure using modern, available or updated materials.

Question 23

Reproduction Cost

Answer 23

The amount of money required to replace a structure, using the same materials and construction standards.

Question 24

Sales Comparison Approach

Answer 24

A valuation method which compares a subject property’s characteristics with those of comparable properties which have recently sold in similar transactions.

Question 25

Situs

Answer 25

People’s preferences for certain locations.

Question 26

Subject Property

Answer 26

Property for which a value estimate is sought.

Question 27

Uniform Standards of Professional Appraisal Practice (USPAP) -

Answer 27

Establishes the requirements for professional appraisal practice,

Question 28

Valuation

Answer 28

Determination of a price at which a knowledgeable seller willingly sells their property and a knowledgeable buyer will willingly purchase it.

Question 29

Principle of Change

Answer 29

Holds that it is the future, not the past, which is of prime importance in estimating value. Change is largely the result of cause and effect.

Question 30

Principle of Conformity

Answer 30

Holds that the maximum of value is realized when a reasonable degree of homogeneity of improvements is present. Use conformity is desirable, creating and maintaining higher values.

Question 31

Principle of Contribution

Answer 31

A component part of a property is valued in proportion to its contribution to the value of the whole. Holds that maximum values are achieved when the improvements on a site produce the highest (net) return, commensurate with the investment.

Question 32

Principle of Change

Answer 32

Holds that it is the future, not the past, which is of prime importance in estimating value. Change is largely the result of cause and effect.

Question 33

Principle of Anticipation

Answer 33

Affirms that value is created by anticipated benefits to be derived in the future.