Key Terms Flashcards
The act or process of developing an opinion of value
Appraisal
The written or oral communication of an appraisal.
Appraisal report
A person trained to provide valuation services competently in an impartial and objective manner according to the appraisal process
Appraiser
Any real estate related financial transaction in which a federal financial institution or regulatory agency engages in, contracts for, or regulates and requires the services of an appraiser
Federally related transaction
A national body composed of representatives of some of the major appraisal and related organizzations
The Appraisal Foundation
Appraisers are expected to follow the ___ established by the foundation’s appraisal standards board
Uniform Standards of Professional Appraisal Practice (USPAP)
A set of standards that details information required of an appraisal of residential property, and is required by many government agencies
Uniform Standards of Professional Appraisal Practice (USPAP)
An entry level appraiser that is a recognized category in IL
Associate real estate trainee appraiser
IL recognized category of appraisers who are qualified to appraise residential property of 1 to 4 units without regard to transaction value or complexity; but with restrictions in accordance with Title XI, USPAP, and other criteria established by the AQB.
Certified residential real estate appraiser
IL recognized category of appraisers who are qualified to appraise all types of real properties without restrictions as to the scope of practice subject to USPAP requirements.
Certified general real estate appraiser
In IL, the ___ established a fee structure and disciplinary and enforcement mechanism for appraisers
Real Estate Appraiser Licensing Act of 2002
A(n) ___ is a less expensive alternative of valuating properties often used by lenders working with home equity lines, refinancing, portfolio management, foreclosures, loss mitigation, and collections.
Broker’s price opinion (BPO)
Many ___ simply consist of a “drive by” that verifies the existence of the property, along with a listing of comparable sales
Broker’s price opinion (BPO)
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
Value
Characteristic of value meaning the need or desire for possession or ownership backed by the financial means to satisfy that need
Demand
Characteristic of value meaning the property’s usefulness for its intended purposes
Utility
Characteristic of value meaning a finite supply
Scarcity
Characteristic of value meaning the relative ease with which ownership rights are transferred from one person to another
Transferability
DUST is an acronym for the 4 characteristics of ___, which are…
Characteristics of Value
1) Demand
2) Utility
3) Scarcity
4) Transferibility
The ___ of real estate is the most probable price that a property should bring in a fair sale.
Market value
A(n) ___ is also known as an arms length transaction
Fair sale
The most probable price that property would bring in an arm’s length transaction (fair sale) under normal conditions on the open market
Market value
The definition of market value makes what 3 assumptions?
1) Presumes competitive and open market
2) Buyer & seller both assumed to be acting prudently and knowledgeably
3) Market value depends on the price not being affected by unusual circumstances
An opinion of value based on an analysis of data, which may include an analysis of comparable sales as well as analysis of potential income, expenses, and replacement costs (less any depreciation)
Market value
What a property actually sells for - the sale price.
Market price
According to the principle of ___, value is created by the expectation that certain events will occur.
Anticipation
The principle of ___ relates to the economic and social forces that affect value. It holds that no physical or economic condition remains constant.
Change
___ is the interaction of supply and demand
Competition
Excess profits generate ___.
Competition
The principle of ___ means that maximum value is created when a property is in harmony with its surroundings
Conformity
The principle of conformity means that maximum value is created when….
a property is in harmony with its surroundings
Under the principle of ___, the value of any part of a property is measured by its effect on the value of the whole.
Contribution
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.
Contribution
The most profitable single use to which a property may be put, or the use that is most likely to be in demand in the near future, is the property’s ___.
Highest and best use
Law that applies as long as money being spent on improvements produces an increase in income or value
Law of Increasing returns
Law that applies when additional improvements do NOT increase income or value
Law of diminishing returns
The principle of ___ holds that merging or consolidating adjacent lots into a single, larger one produces a greater total land value than the sum of the 2 sites valued separately
Plottage
The process of merging 2 seperately owned lots under one owner
Assemblage
Plottage is the amount that value is increased by successful ___
Assemblage
___ is the amount that value is increased by successful assemblage
Plottage
Appraisal principle stating that between dissimilar properties, the value of the better quality property is affected adversely by the presence of the lesser quality property
Regression
Appraisal principle stating that between dissimilar properties, the value of the lesser-quality property is favorably affected by the presence of the better quality property
Progression
Under the principle of ___, the maximum value a property tends to be set by how much it would cost to purchase an equally desirable and valuable property.
Substitution
___ is the foundation of the sales comparison approach
Substitution
The principle of ___ holds that the value of a property depends on the number of properties available in the market place.
Supply & demand
When supply ___, value ___
Supply increases
Value decreases
When demand ___, value ___
Demand increases
Value increases
In the ___ approach, an estimate of value is obtained by comparing the property being appraised (the subject property) with recently sold comparable properties.
Sales comparison
Element of comparison meaning that the financing terms must be considered, including adjustments for differences such as mortgage loan terms and owner financing
Financing concessions
Element of comparison meaning that interest rates, supply and demand, and other economic indicators must be analyzed
Market conditions
Element of comparison meaning that adjustments must be made for motivational factors that would affect the sale, such as foreclosure, a sale between family members, or some nonmonetary incentive
Conditions of sale
Element of comparison meaning that an adjustment must be made if economic changes occur between the date of sale of the comparable property and the date of the appraisal
Market conditions since the date of sale
Element of comparison meaning that similar properties might differ in price from neighborhood to neighborhood or even between locations within the same neighborhood
Location or area preference
Element of comparison meaning that physical features such as the structure’s age, size, and condition may require adjustments
Physical features and amenities
CBS
Comp better subtract
CPA
Comp poorer add
The ___ approach to value is the process of estimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reporduction or replacement cost of the building, less depreciation
Cost approach
___ cost is the construction cost at current prices of an exact duplicate of the subject improvement.
Reproduction
___ cost is the cost to construct an improvement similar to the subject property using current construction methods and materials, but not necessarily an exact duplicate
Replacement
Appraisal cost approach method of estimating building costs by multiplying the number of square feet in the improvements being appraised by the cost per square foot for recently constructed similar improvements
Square-foot method
Cost approach method that is also called the comparison method
Square-foot method
Appraisal cost approach method of estimating building costs by calculating the costs of all the physical components in the structure, with the cost of each item including its proper installation, connection, and so forth.
Unit in place method
Appraisal cost approach method of estimating building costs that is also called the segregated cost method
unit-in-place method
Appraisal cost approach method of estimating building costs by calculating the cost of all the physical components in improvements (lumber, brick, plaster, etc), adding the cost to assemble them (labor), and then including the indirect costs associated with such construction (permits, survey, payroll, taxes, builder’s profit, etc)
Quantity-survey method
Appraisal cost approach method of estimating building costs by multiplying the original cost of the property by a percentage factor to adjust for current construction costs
Index method
A loss in value due to any cause compared with today’s cost of replacement
Depreciation
Refers to a condition that adversely affects the value of an improvement to real property
Depreciation
Class of depreciation meaning a reduction in a property’s value resulting from a decline in physical condition. Can be caused by action of the elements or ordinary wear and tear
Physical deterioration
A(n) ___ item is one in need of repair, such as painting (deferred maintenance), that is economically feasible and would result in an increase in value equal to or exceeding the cost
Physical deterioration
An item is ___ if it is a defect caused by physical wear and tear if its correction would not be economically feasible or contribute a comparable value to the building, such as a crack in the foundation.
Incurable
Class of depreciation meaning a loss in value from the market’s response to the item
Functional obsolescence
Class of depreciation meaning a loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design
Functional obsolescence
Class of depreciation meaning the reduction in value caused by factors outside a property, such as zoning, environmental, social, or economic forces.
External obsolescence
___ obsolescence was previously known as economic or environmental obsolescence
External
A method of calculating depreciation for tax purposes, computed by dividing the adjusted basis of a property by the estimated number of years of remaining useful life
Straight-line method
Also called the economic age-life method
Straight-line method
The period during which a property is expected to remain useful for its original intended purpose
Economic life
The ___ approach to value is based on the present value of the rights to future income
Income approach
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
Income approach
The income projected for an income-producing property after deducting losses for vacancy, collection, and operating expenses
Net operating income (NOI)
The rate of return a property will produce on the owner’s investment
Capitalization rate
The ___ is determined by comparing the relationship of NOI to the sales prices of similar properties that have sold in the current market
Capitalization rate
GRM
Gross rent multiplier
The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property’s value
Gross rent multiplier (GRM)
GIM
Gross income multiplier
A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property’s value
Gross income multiplier
The act of analyzing and effectively weighing the findings from all 3 appraisal approaches
Reconciliation
When the appraiser combines 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
Reconciliation
