Chapter 6: Key Mortgage Terms Flashcards
_____ age is how old the property is in years since it was first built. _____ age is how old it appears to the appraiser based on its apparent wear and tear.
Actual Age vs. Effective Age
An appraiser’s written or oral estimate of value submitted to a client based on a specified definition, the function of value for the subject property as of a specific date, giving all details of the data utilized in the appraisal process.
Appraisal Report
The process of developing an opinion of market value for a particular property as of a specific date.
Appraisal
An estimate by an appraiser of the amount of a particular value (market value, assessed value, or insurable value) based on the given assignment.
Appraised Value
A set of appraisal guidelines now required by all lenders selling loans to Fannie Mae and Freddie Mac. As of October 15, 2010, these requirements replace the Home Valuation Code of Conduct (HVCC). They are completely consistent with the core principles of the HVCC and provide additional clarity for day-to-day execution by lenders.
Appraiser Independence Requirements
A licensed person who engages in the procedure of estimating the value of real property or personal property.
Appraiser
The percentage used in the income capitalization approach to valuation that represents an annual rate of return on one’s investment. The ratio is the percentage you get when you divide the property or comparable net operating income at time of sale by the value or sales price. High cap rates=low risk; low cap rates = high risk. (Fannie Mae form 1050A instructions)
Capitalization Rate
These are the properties which are the same in many ways as the property being appraised, that is, the subject property. They can therefore be used to estimate the value of the subject property.
Comparables
This is a determination of how consistent a particular property is with surrounding properties in terms of size, age, style, level of improvement, etc. Properties that conform to the general characteristics of surrounding properties maintain values consistent with the surrounding properties. Nonconforming properties will not achieve the same potential value as ones that do conform to their neighbor properties.
Conformity
A method of valuing property based on the depreciated reproduction cost of all improvements to the subject property, plus the market value of the site.
Cost Approach
A loss in value from wear and tear, obsolescence, or external factors (beyond the property lines).
Depreciation (Real Estate)
The money used for the down payment, plus payments applied to the principal portion of a loan, plus any increase in the value of the property due to appreciation.
Equity
The decrease in the value of a property because of factors not related to the physical characteristics of the property, for example environmental, social, or political aspects.
External Obsolescence
The decrease in the value of a structure because of new design, trends in market preferences, consumer tastes, and technological advances. The issue that causes the loss in value may be curable, or incurable.
Functional Depreciation
The most profitable and efficient use of any given tract of land, provided the use is legal, financially viable, productive, and physically plausible.
Highest and Best Use
A method of property valuation that estimates the present value of the property’s future stream of income.
Income Capitalization Approach
In a normal and fair real estate market, this is the most likely price that will result in a sale within a reasonable marketing period between a buyer and seller, both acting in their own best interests, and without duress.
Market Value
A particular geographic region or demographic section in which there is a demand for certain goods or services.
Market
A situation where the property’s value has been improved to a level above the upper range of values in that same neighborhood. For example, a home that is double in size compared to most other homes in the same area. Over improved properties are worrisome for lenders because they tend to be pulled down in value over time to the average of area property values
Over Improvement
A decrease in the value of a property or its improvements due to the deterioration of its physical condition. The reason for this can be the weather, usage, age, etc.
Physical Depreciation
The amount of money requested or exchanged for a piece of property.
Price
The basis for all three valuation methods and the most important concept in appraising. It says a reasonable buyer will pay no more for a property than what an alternative, equally desirable property would cost. It is another name for comparison shopping.
Principle of Substitution
The tangible real estate and intangible bundle of rights associated with the ownership of real estate.
Real Property
The final step in an appraisal report where the appraiser rechecks all information and determines how much weight to place on each of the property values indicated by the valuation methods to arrive at a single estimated market value for the subject property.
Reconciliation
A means of estimating value by comparing recent sales of substantially similar properties to the subject property after making appropriate adjustments for any differences. This method is effective in an active market where arms-length (see definition on page 183) sales transactions can be identified, information collected and verified.
Sales Comparison Approach
A form, sometimes referred to as a 1004, used for FNMA, HUD, FHLMC and FMHA loans in estimating property value. VA loans use a form known as a certificate of reasonable value (CRV), which also incorporates many home inspection concepts.
URAR (Uniform Residential Appraisal Report)
An annual publication printed by the Appraisal Foundation that defines key appraisal terminology and specifies guidelines for completing non-biased and accurate appraisals.
USPAP (Uniform Standards of Professional Appraisal Practice © The Appraisal Foundation)
The power of a good or service to command other goods or services in exchange; the present worth of future rights to income and benefits arising from ownership.
Value
Any claim against the title or property that are impediments to the sale or use of the property. Typically a claim from a 3rd party and may surface as a lien against the property, a title exception, an easement by a neighbor or utility company or a zoning issue. When the property is “________” the ___________ must be cleared in some fashion to provide proper title transfer.
Encumbrance
The transfer of the property to new owners or in the case of a paid off mortgage, the transfer (conveyance) of the property from the lender to the borrower with the deed.
Reconveyance
