Chapter Eighteen Flashcards
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
anticipation
loss in value resulting from the property’s physical deterioration, external depreciation (decrease in price), and functional obsolescence. 328
accrued depreciation
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
appraisal
the combining of two or more adjoining lots into one larger tract to increase their total value. 326
asemblage
an opinion of real estate value commissioned by a bank or attorney and provided by a broker. 316
broker’s price opinion (BPO)
the rate of return a property will produce on the owner’s investment. 331
capitalization rate
the appraisal principle that holds that no physical or economic condition remains constant. 325
change
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.. 315-316
competitive market analysis (CMA)
the appraisal principle that states that excess profits generate competition. 325
competition
the appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold theri value. 325
conformity
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
contribution
the process of estimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation. 335
cost approach
1) In appraisal, a loss of value in property due to any cause, 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
depreciation
the number of years during which an improvement will add value to the land. 331
economic life
incurable depreciation caused by factors not on the subject property, such as environmental, social, or economic factors. 330
external obsolescence
a loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design. 330
functional obsolescence
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 income multiplier (GIM)
the figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property’s value. 333
gross rent multiplier (GRM)
the possible use of a property that would produce the greatest net income and, thereby, develop the highest value. 340
highest and best use
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. 331-333
income approach
law that applies when at the point where additional improvements do not increase income oor value. 326
law of diminishing returns
law that applies as long as money being spent on improvements produces an increase to income or value. 326
law of increasing returns
also known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties. 327
market data approach
the most probable price property would bring in an arm’s-length transaction under normal conditions on the open market. 324
market value
the income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses. 331
net operating income (NOI)
a reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear. 330
physical deterioration
the increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot. 326
plottage
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
progression
the final step in the appraisal process, in which the appraiser combines the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final estimate of market value for the subject property. 335
reconciliation
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
regression
the construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose of the function as the original. 37
replacement cost
the construction cost at current prices of an exact duplicate of the subject property. 329
reproduction cost
the process of estimating the value of a property by examining and comparing actual sales of comparable properties. 327
sales comparison approach
the amount of money paid to a seller for a product bought. 327
sales price
an appraisal principle that states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute, assuming that no costly delay in encountered in making the substitution. 326
substitution
the appraisal principle that follows that interrelationship of the supply and demand for real estate. 7-8
supply and demand
USPAP 315
Uniform Standards of Professional Appraisal Practice
the power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities. 324
value
