Chapter 4 Introduction to Value Flashcards
Define Book Value.
an accounting term that refers to the value used for financial statements. Typically original price, plus capital improvements, less accounting depreciation. Used for income tax liability and investment return.
What is Assed Value?
An administrative, government-imposed valuation. Value according to the tax rolls.
What is the market value?
The most probable sales price given a reasonable period of time to sell.
Define Utility.
A characteristic of real estate that indicates that it has the power of a public good-that it fills a need or provides a service.
Define the principle of desire.
A commodity must meet more than a physical need; it must meet a psychological need.
Explain the highest and best use of a property.
The reasonable, probable, and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and results in the highest value.
List the criteria for testing highest and best use
legality profitability financial feasibility physical probability reasonableness environmental acceptance appropriateness compatibility possibility competative uses
What is the physical probability in determining highest and best use?
The building must be physically possible-the soil must be able to support construction, no restrictions on proposed building height, etc.
List the important factors to consider with regard to environmental acceptance in determining highest and best use.
The building must comply with environmental regulations, noise ordinances, limits on traffic, and other varied restrictions on the use of property.
Define the term appropriateness when discussing highest and best use.
A simple judgement as to whether the proposed building fits into its environment and neighborhood.
What is a gross lease?
A lease in which the lessee pays a fixed fee and the landlord pays all property related operating expenses.
Which type of loan requires that the tenant pay some or all of the operating expenses of the property?
A net lease
In which type of lease do rent payments cover only the amortized mortgage principal and lessor’s basic profit?
Triple-Net Lease. Commonly used for unique single-tenant buildings
Which type of lease is commonly used for unique single-tenant building?
A Triple-Net lease.
What is a percentage lease?
A lease in which the landlord is fully or partially compensated for rent by a percentage of the tenant’s sales.
