Chapter 17: Real Property Valuation Flashcards
age-life method
A method of depreciation computed by dividing the replacement cost of a property by the number of years of remaining useful life; also called the straight-line method
appraisal
An estimate of the quantity, quality, or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value
arm’s length transaction
A transaction where the parties are dealing from equal bargaining positions
broker price opinion (BPO)
A comparison of the prices of recently sold homes that are similar to a listing seller’s home in terms of location, style, and amenities; an estimate of market value; also called a comparative market analysis (CMA)
capitalization rate
The rate of return a property will produce on the owner’s investment
comparable (comp)
Property used in an appraisal report that is substantially equivalent to the subject property
comparative market analysis (CMA)
A comparison of the prices of recently sold homes that are similar to a listing seller’s home in terms of location, style, and amenities; an estimate of market value; also called a broker price opinion (BPO)
cost approach
The process of estimating the value of a property by adding the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation, to the estimated land value
depreciation
(1) In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence, and external obsolescence.
(2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property
economic life
The number of years during which an improvement will add value to the land
economic obsolescence
The loss of value due to factors that are not on the property, in the property, or even within property lines
effective age
The apparent age of a building based on observed condition rather than chronological age
functional obsolescence
A loss in value to an improvement to real estate arising from functional problems, often caused by age or poor design
gross rent multiplier (GRM)
The figure used as a multiplier of the gross MONTHLY income of a property to produce an estimate of the property’s value
highest and best use
The possible use of a property that would produce the greatest net income and thereby develop the highest value
income capitalization approach
The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life
net operating income (NOI)
The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses
physical deterioration
A reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear
quantity-survey method
The appraisal method of estimating building costs by calculating the cost of all the physical components in the improvements, adding the cost to assemble them, and then including the indirect costs associated with such construction
reconciliation
The final step in the appraisal process, in which the appraiser combines the estimates of value received from the sales comparison, cost, and income capitalization approaches to arrive at a final estimate of market value for the subject property
replacement cost
The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original
reproduction cost
The construction cost at current prices of an exact duplicate of the subject property
sales comparison approach
The process of estimating the value of a property by examining and comparing actual sales of comparable properties
square-foot method
The appraisal method of estimating building costs by multiplying the number of square feet in the improvements being appraised by the cost per square foot for recently constructed similar improvements
straight-line method
A method of calculating depreciation for tax purposes, computed by dividing the adjusted basis of a property by the estimated number of years of remaining useful life
substitution
An appraisal principle that states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution
unit-in-place method
The appraisal method of estimating building costs by calculating the costs of all the physical components in the structure, with the cost of each item including its proper installation, connection, et cetera; also called the segregated cost method
value
The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities
gross income multiplier (GIM)
A figure used as a multiplier of the gross ANNUAL income of a property to produce an estimate of the property’s value
