Class 16 Flashcards
A loss of value
depreciation
Changing the sale price of a comparable
adjustment
present worth of a future benefit
Value
Period of profitability
economic life
the amount a property is sold for
market value
What a property sells for
market price
Bringing all facts together
reconciliation
An approach that combines land and improvement value
Cost approach
An analysis of alternative conclusions to arrive at a value is…
recociliation
An appraiser would most likely consider the principle of regression if he discovered that….
an expensive home was built in an area of lower priced homes
A home that lacks sufficient wiring, has a 30 year old furnace, and an insufficient floor plan for today’s modern living is most likely suffering from
Functional obsolescence
Why would the cost approach NOT be used to estimate the value of a vacant lot?
because the cost approach separates land and improvements. If land only, then there are no improvements
Economic obsolescence would most likely occur when….
there is a downturn in market conditions
The expectation of a future event would be applicable ot the principal of….
anticipation
A separation of improvement and land value would be used if an appraiser were estimating value by using the…
cost approach
An appraisal is an….
opinion of value
Appraisers must be __________
licensed
In Kentucky we assess based on __________
market value
Standards that the appraisers must follow are the ….
US PAP (professional Appraisal Practice )
By definition, ________ is the present worth of a future benefit
Value
To have value, a property or good must have the characteristics of DUST:
Demand
Utility
Scarcity
Transferability
NOTE: Market value has many definitions. For appraisal purposes, market value is usually defined as “ the most probably price, as of a specified date, in cash or terms equivalent to cash, for which the specified property rights should sell after reasonable exposure in a competitive market, with the buyer and seller acting prudently, knowledgeably, and for self-interest and assuming neither is under duress.
___________ is what a property actually sold for
Market price
What is book value?
The value of a property + improvements - depreciation
____________ is the perception that value is created by expected future benefits
Anticipation
Anticipation (expected future value) is viewed heavily in the ______ approachs
Income
Competition is the interaction between _______ and ________
supply and demand
*An appraiser needs to be aware of competition and how it affects value.
The principal of conformity states that value is created when….
property conforms to the demands of its market
The concept of ______ states that value is added or removed depending on how a component adds or detracts from the whole of a property. As an example, an in-ground pool may add or detract from the value of a property depending on how the pool is viewed by the market participants
Contribution
_________ is considered to be the most important economic principal when determining value of property
highest and best use
________ refers to the combining of two or more lots. When this happens, the value of the whole is normally greater than the value of the separate parts.
Assemblage
The value created when land is assembled is called ____________ value
plottage
The principal of ______ is a theory that higher priced property located in a lower priced neighborhood will reduce in value
Regression
The principal of __________ states that lower priced property placed in an area of higher priced property will increase in value
Progression
Considered to be the foundation for the approaches to appraisal, the principal of _______ states that a property with the lowest price attracts the greatest demand.
Substitution
A _______ sale analysis is used to find the appropriate dollar value or percent value that will be used in the adjustment process.
Paired
A minimum of ___ comparables are used to make adjustments
3
Under the cost approach, the _____ and _________ are valued separately. This approach is used more often for new buildings and special purpose buildings such as churches and schools.
land
improvements
To find the value using the cost approach, what formula would you use
Cost Approach =
Reproducing/replacing improvements
- accrued depreciation
+ Lane value
Reproduction vs. Replacement costs
Reproduction cost - construct an EXACT duplicate using the same materials, design, layout, etc. Most appraisers strive for reproduction cost when using the cost approach
*Notre Dam
Replacement cost - construct with the same utility/use but use modern materials. Same utility but not always the same look
______ is a loss of value from any cause . The difference between reproduction cost and the market value
Depreciation
______ depreciates, the ________ does NOT depreciate
Improvements depreciate
land does NOT depreciate
The three forms of depreciation are below. describe each:
Physical deterioration
Functional deterioration
External obsolescence
Physical deterioration - poor maintenance or wear and tear; peeling paint, weak floor joists…physical deterioration may be curable or incurable
Functional deterioration - results from outdated items, poor floor plans or items of superadequacy; outdated kitchen or bath fixtures, an old furnace; may be curable or incurable
External obsolescence - results from factors outside the property that cause a loss of value; high interest rates; declining property next door; incurable
____________ is the time period over which an improvement contributes to the land value
economic life
The age of a building indicated by its overall condition
effective age
The process of bringing together all the facts form all approaches to estimate the value of a property
Reconciliation
The date of inspection is usually the ______ on the appraisal form/report
date of valuation
What factors are used when applying the income approach?
Annual net operating income
cap rate
annual gross income
The market value of a parcel of real estate is….
an estimate of the most probable price it should bring
Depreciation is the…..
loss of value for any reason
Who completes a comparative market analysis
a real estate agent/professional
Value is the most probable price a property will bring. What are some of the basic principles?
change
contribution
plottage
substitution
