Chapter 18- Key Terms - Real Estate Appraisal

Question 1

accrued deprciation

Answer 1

Loss in value resulting from the property’s physical deteriation, external deprciation (decrease in price), and functional obsolescence. 328

Question 2

anticipation

Answer 2

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

Question 3

appraisal

Answer 3

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

Question 4

broker’s price opinion (BPO)

Answer 4

An opinion of real estate value commissioned by a bank or attorney and provided by a broker. 316

Question 5

capitalization rate

Answer 5

The rate of return a property will produce on the owner’s investment. 331

Question 6

change

Answer 6

The appraisal principle that holds that no physical or economic condition remains constant. 325

Question 7

competitive market analysis (CMA)

Answer 7

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

Question 8

competition

Answer 8

The appraisal principle that states that excess profits generate competition. 325

Question 9

conformity

Answer 9

The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value. 325

Question 10

contribution

Answer 10

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

Question 11

cost approach

Answer 11

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

Question 12

depreciation

Answer 12

(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

Question 13

economic life

Answer 13

The number of years during which an improvement will add value to the land. 331

Question 14

external obsolescence

Answer 14

Incurable depreciation caused by factors nt on the subject property, such as environmental, social, or economic factors. 330

Question 15

functional obsolescence

Answer 15

A loss of value to an improvement to real estate arising from functional problems, often casued by age or poor design. 330

Question 16

gross income multiplier (GIM)

Answer 16

A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property’s value. 333

Question 17

gross rent multiplier (GRM)

Answer 17

The figure used as a muliplier of the gross monthly income of a property to produce an estimate of the property’s value. 333

Question 18

highest and best use

Answer 18

The possible use of a property that would produce the greatest net income and, thereby, develop the highest value. 340

Question 19

income approach

Answer 19

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

Question 20

law of diminishing returns

Answer 20

Law that applies when at the point where additional improvements do not increase income or value. 326

Question 21

law of increasing returns

Answer 21

Law that applies as long as money being spent on improvements produces an increase in income or value. 326

Question 22

market data approach

Answer 22

Also known as the sale comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties. 327

Question 23

market value

Answer 23

The most probable price property would bring in an arm’s-length transaction under normal conditions on the open market. 324

Question 24

net operating income (NOI)

Answer 24

The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses. 331

Question 25

physical deterioration

Answer 25

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

Question 26

plottage

Answer 26

The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot. 326

Question 27

progression

Answer 27

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

Question 28

reconciliation

Answer 28

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

Question 29

regression

Answer 29

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

Question 30

replacement cost new

Answer 30

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

Question 31

reproduction cost

Answer 31

The construction cost at current prices of an exact duplicate of the subject property. 329

Question 32

sales comparison approach

Answer 32

The process of estimating the value of a property by examining and comparing actual sales of comparable properties. 327

Question 33

sales price

Answer 33

The amount of money paid to seller for a product bought. 327

Question 34

substitution

Answer 34

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

Question 35

supply and demand

Answer 35

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

Question 36

Uniform Standards of Professional Appraisal Practice (USPAP)

Answer 36

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

Question 37

value

Answer 37

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