Chapter 6: Key Mortgage Terms

Question 1

_____ 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.

Answer 1

Actual Age vs. Effective Age

Question 2

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.

Answer 2

Appraisal Report

Question 3

The process of developing an opinion of market value for a particular property as of a specific date.

Answer 3

Appraisal

Question 4

An estimate by an appraiser of the amount of a particular value (market value, assessed value, or insurable value) based on the given assignment.

Answer 4

Appraised Value

Question 5

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.

Answer 5

Appraiser Independence Requirements

Question 6

A licensed person who engages in the procedure of estimating the value of real property or personal property.

Answer 6

Appraiser

Question 7

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)

Answer 7

Capitalization Rate

Question 8

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.

Answer 8

Comparables

Question 9

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.

Answer 9

Conformity

Question 10

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.

Answer 10

Cost Approach

Question 11

A loss in value from wear and tear, obsolescence, or external factors (beyond the property lines).

Answer 11

Depreciation (Real Estate)

Question 12

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.

Answer 12

Equity

Question 13

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.

Answer 13

External Obsolescence

Question 14

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.

Answer 14

Functional Depreciation

Question 15

The most profitable and efficient use of any given tract of land, provided the use is legal, financially viable, productive, and physically plausible.

Answer 15

Highest and Best Use

Question 16

A method of property valuation that estimates the present value of the property’s future stream of income.

Answer 16

Income Capitalization Approach

Question 17

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.

Answer 17

Market Value

Question 18

A particular geographic region or demographic section in which there is a demand for certain goods or services.

Answer 18

Market

Question 19

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

Answer 19

Over Improvement

Question 20

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.

Answer 20

Physical Depreciation

Question 21

The amount of money requested or exchanged for a piece of property.

Answer 21

Price

Question 22

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.

Answer 22

Principle of Substitution

Question 23

The tangible real estate and intangible bundle of rights associated with the ownership of real estate.

Answer 23

Real Property

Question 24

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.

Answer 24

Reconciliation

Question 25

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.

Answer 25

Sales Comparison Approach

Question 26

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.

Answer 26

URAR (Uniform Residential Appraisal Report)

Question 27

An annual publication printed by the Appraisal Foundation that defines key appraisal terminology and specifies guidelines for completing non-biased and accurate appraisals.

Answer 27

USPAP (Uniform Standards of Professional Appraisal Practice © The Appraisal Foundation)

Question 28

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.

Answer 28

Value

Question 29

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.

Answer 29

Encumbrance

Question 30

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.

Answer 30

Reconveyance