Chapter 16 - Learning Objectives & Key Terms Flashcards
Appraisal
An estimate of the value of property resulting from an analysis of facts about the property. An opinion of value.
Assemblage
The joining of two or more connecting properties into one tract.
Automated Valuation Models
A term for services that use mathematical modeling combined with databases of existing properties and transactions to calculate real estate values.
Comparative Market Analysis (CMA
An analysis of the competition in the marketplace that a property will face upon sale attempts.
Cost Depreciation Approach
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.
Curable
A defect that can be cured with a resulting added value
Depreciation
The lowering of the price or estimated value.
Economic Life
The period of time that a property may be expected to be profitable or productive.
Federally Related Transaction
Any sale transaction that involves a federal agency in either the primary or secondary mortgage market.
Gross Income Multiplier (GIM)
Method of estimating the market value of commercial and industrial properties.
Gross Rent Multiplier (GRM)
Method of estimating the market value of income-producing residential property.
Highest And Best Use
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.
Income Approach
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.
Incurable
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.
Market Value
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.
Over-improvement
An addition or change to property that exceeds what could be justified by local conditions.
Plottage
Combination or consolidation of adjacent lots into one larger lot.
Principle of Substitution
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.
Principle of Progression
A principal of appraisal that states that superior properties of the same type enhance the value of an inferior property.
Reconciliation
The final stage in the appraisal process in which the appraiser reviews the data and estimates the subject property’s value.
Regression
A principal of appraisal that states that inferior properties adversely affect the value of a better property of the same type.
Replacement Cost
The amount of money required to replace a structure using modern, available or updated materials.
Reproduction Cost
The amount of money required to replace a structure, using the same materials and construction standards.
Sales Comparison Approach
A valuation method which compares a subject property’s characteristics with those of comparable properties which have recently sold in similar transactions.
Situs
People’s preferences for certain locations.
Subject Property
Property for which a value estimate is sought.
Uniform Standards of Professional Appraisal Practice (USPAP) -
Establishes the requirements for professional appraisal practice,
Valuation
Determination of a price at which a knowledgeable seller willingly sells their property and a knowledgeable buyer will willingly purchase it.
Principle of Change
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.
Principle of Conformity
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.
Principle of Contribution
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.
Principle of Change
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.
Principle of Anticipation
Affirms that value is created by anticipated benefits to be derived in the future.
