Flashcards

Question 1

loan-to-value ratio

Answer 1

the percentage of value or sales price that a lender is willing to finance

Question 2

principle of contribution

Answer 2

the value of a property is equal to the sum of the
contributory value of each of its component parts. Adding a swimming pool to a property at
a cost of $50,000 might result in a contributory value of only $20,000.

Question 3

PRINCIPLE OF CHANGE

Answer 3

Changes in the broader market affect the value of a given parcel of land.

Question 4

principle of anticipation

Answer 4

states that the purchase price is affected by the expectation of future appeal and benefits.

Question 5

principle of substitution

Answer 5

the value of a commodity is influenced by the cost of acquiring a substitute or comparable item. An informed person, acting rationally, would pay no more for an item
than he or she would to acquire an equally desirable substitute.

Question 6

principle of conformity

Answer 6

suggests that value is maximized when there is a reasonable degree of homogeneity, or sameness, in a neighborhood. Houses in a neighborhood also tend to conform in value to each other.

Question 7

PRINCIPLE OF INCREASING AND DECREASING RETURNS

Answer 7

It is prudent to improve property when the value added by the improvement exceeds cost of the improvement. This would suggest that an owner should not “over improve” a property.

Question 8

PRINCIPLE OF REGRESSION

Answer 8

The presence of lower-priced properties in the area will cause a decline in the value of the subject
property.

Question 9

principle of progression

Answer 9

where the value of a subject property is increased by the value of surrounding properties.

Question 10

CHARACTERISTICS OF VALUE

Answer 10

Demand
Utility
Scarcity
Transferability

Question 11

Market value

Answer 11

the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, under guidelines published by federal lending institutions.

Question 12

assessed value

Answer 12

assessed value for tax purposes is determined by the taxing authority, and may be well above or below the value based upon a real appraisal. Assessed value should never be used as a reliable estimate of market value.

Question 13

SALES COMPARISON APPROACH

Answer 13

the appraiser focuses on recent sales in determining the value of the subject by viewing “comparables” or “comps”.

Question 14

COST APPROACH

Answer 14

considers how much a new structure of this size and type would currently cost to build. The cost approach is commonly used for unique properties for which there is little market activity.

Question 15

Physical deterioration

Answer 15

the loss in a property’s value due to daily wear and tear.

Question 16

Chronological Age

Answer 16

The actual age of the property in years.

Question 17

Effective Age

Answer 17

The appraiser’s estimate of the age of the house based upon its ongoing maintenance and upgrades.

Question 18

Functional obsolescence

Answer 18

the loss in desirability of the style, layout, or function of an element of a property over time. For example, a residential heating system featuring steam radiators may adequately warm the rooms, but it is functionally obsolete because buyers today prefer heating methods
that are less obvious and take up less space.

Question 19

External obsolescence

Answer 19

refers to the loss in value of a property caused by factors outside of the property
itself.

Question 20

Gross Rent Multiplier

Answer 20

GRM = Sales Price ÷ Monthly Rent

Question 21

redlining

Answer 21

the practice of refusing to provide financing in

a particular area because of location.

Question 22

Texas Veterans Land Board

Answer 22

component of the Texas General Land Office, was created in 1946 to administer benefits exclusively for Texas veterans.

Question 23

Police Power

Answer 23

the right of the government to regulate and control the way land is used. The most common example of police power is zoning.