Chapter 18- Key Terms - Real Estate Appraisal Flashcards
accrued deprciation
Loss in value resulting from the property’s physical deteriation, external deprciation (decrease in price), and functional obsolescence. 328
anticipation
The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property. 325
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. 4
broker’s price opinion (BPO)
An opinion of real estate value commissioned by a bank or attorney and provided by a broker. 316
capitalization rate
The rate of return a property will produce on the owner’s investment. 331
change
The appraisal principle that holds that no physical or economic condition remains constant. 325
competitive 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. 315-16
competition
The appraisal principle that states that excess profits generate competition. 325
conformity
The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value. 325
contribution
The appraisal principle that states that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value. 325
cost approach
The process of esimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reporduction or replacement cost of the building, less depreciation. 335
depreciation
(1) In appraisal, a loss of value in property due to any casue, 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. 329
economic life
The number of years during which an improvement will add value to the land. 331
external obsolescence
Incurable depreciation caused by factors nt on the subject property, such as environmental, social, or economic factors. 330
functional obsolescence
A loss of value to an improvement to real estate arising from functional problems, often casued by age or poor design. 330
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. 333
gross rent multiplier (GRM)
The figure used as a muliplier of the gross monthly income of a property to produce an estimate of the property’s value. 333
highest and best use
The possible use of a property that would produce the greatest net income and, thereby, develop the highest value. 340
income 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. 331-33
law of diminishing returns
Law that applies when at the point where additional improvements do not increase income or value. 326
law of increasing returns
Law that applies as long as money being spent on improvements produces an increase in income or value. 326
market data approach
Also known as the sale comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties. 327
market value
The most probable price property would bring in an arm’s-length transaction under normal conditions on the open market. 324
net operating income (NOI)
The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses. 331
physical deterioration
A reducton in a property’s value resulting from a decline in physical condition; can be casued by action of the elements or by ordinary wear and tear. 330
plottage
The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot. 326
progression
An appraisal principle that states that, between dissimilar properties, the value of the lesser-quality property is favorably affected by the presence of the better-quality property. 326
reconciliation
The final step in the appraisal process, in which the appraiser combines the estimates of value received fom the sales comparison, cost and income approaches to arrive at a final estimate of market value for the subject property. 335
regression
An appraisal principle that states that between dissimilar properties, the value of the better-quality property is affected adversely by the presence of the lesser-quality property. 326
replacement cost new
The construction cost at current prices of a property that is not necessaily an exact duplicate of the subject property but serves the same purpose or function as the original. 37
reproduction cost
The construction cost at current prices of an exact duplicate of the subject property. 329
sales comparison approach
The process of estimating the value of a property by examining and comparing actual sales of comparable properties. 327
sales price
The amount of money paid to seller for a product bought. 327
substitution
An appraisal principle that states that the maximum value a property tends to be set by the cost of purchasing an equally desirable and valuable sutstitute property, assuming that no costly delay is encountered in making the sustitution. 326
supply and demand
The appraisal principle that follows the interrelationship of the supply of and demand for real estate. Because apprasing is based on economic concepts, this principle recognizes that real poperty is subject to the influences of the marketplace as with any other commodity. 7-8
Uniform Standards of Professional Appraisal Practice (USPAP)
A set of standards that detail information required of an appraisal of residential property. The Uniform Residential Appraisal Report is required by many government agencies. 315
value
The power of a good or service to command oher goods in exchange for the present worth of future rights to its income or amenities. 324
