Key Terms Unit 16 Flashcards
Loss in value resulting from property’s physical deterioration, external depreciation, and functional obsolescence.
Accrued depreciation
Value is created by the expectation that certain events will occur.
Anticipation
An opinion of value based on supportable evidence and approved methods.
Appraisal
Took effect in October 15, 2010 and initiated by Fannie Mae. Regulations that must be followed by appraisers to ensure accurate and objective appraisals.
Appraiser Independence Requirements (AIR)
The process of merging two separately owned lots under one owner.
Assemblage
Less expensive than an appraisal, might be requested by a lender when property is refinanced.
Broker’s price opinion (BPO)
Comparing the relationship of net operating income with sales prices of similar properties that have sold in the current market.
Capitalization rate
No physical or economic condition remains constant.
Change
The interaction of supply and demand creates___
Competition
The maximum value is created when a property is in harmony with its surroundings.
Conformity
The value of any part of a property is measured by its effect on the value of the whole parcel.
Contribution
Value is based on the principal of substitution. Consists of 5 steps:
Value of land = 3
Cost of construction = 5
Accrued depreciation = 4
Subtract accrued depreciation from cost of construction =1
Add the sum to the value of land. 1 + 3 = 4
Cost approach
Loss of value for any reason. The condition that adversely affects the value of an improvement to real property.
Depreciation
The period during which it is expected to remain useful for its original intended purpose.
Economic life
If depreciation is caused by negative factors not on the subject property. ie. close to a polluting factory. This loss in value cannot be cured in spending money on the property.
External obsolecence
Obsolescence means a loss in value from the market’s response to the item. Outmoded or unacceptable physical or design features that are no longer considered desirable are considered curable if they can be replaced which would ultimately increase the value.
Functional obsolescence
If a buyer is interested in purchasing five or more units, a ___ based on annual income could be used.
Gross income multiplier (GIM)
sales price + annual gross income = GIM
A buyer interested in purchasing a 1 to 4 unit residential rental property would use this method; the ____ based on monthly rental income could be used for a rough approximation of value.
Gross rent multiplier (GRM)
sales price + annual gross rent = GRM
The most profitable single use of a property. It must be physically possible
legally permitted
economically and financially feasible
and the most profitable or maximally productive.
Highest and best use
Is based on the present value of the right to future income. GIVEN= gross, income, vacancy, expenses, net operating income
Income approach
At the point where additional improvements do not increase income or value.
law of diminishing returns
As long as money spent on improvements produces and increase in income and value.
law of increasing returns
Value is obtained by comparing the property being appraised- the subject property- with recently sold comparable properties- properties similar to the subject in location and features.
market data approach
An opinion of value based on a analysis of data. Considered the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale.
market value
Deduct the annual operating expenses from the effective gross income to get ______.
Net operating income (NOI)
A curable item is one in need of repair, such as painting, that would result in an increase in value equal to or exceeding its cost.
Physical deterioration
Evidence when the consolidation of adjacent lots into a single larger one produces a greater total land value than the sum of the two sites valued separately. The amount that the value of the combined properties is increased by successful assemblage.
Plottage
The value of a modest home would be higher if it were located among larger, fancier properties.
Progression
The act of analyzing and effectively weighing the findings from the three approaches.
Reconciliation
The worth of a better-quality property is adversely affected by the presence of a lesser-quality property.
Regression
Also known as the market data approach, value is obtained by comparing the property being appraised- the subject property- with recently sold comparable properties.
sales comparison approach
This is adjusted to reflect the impact on value of any differences between the subject and comparable.
sales price
The maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property.
Substitution
The value of a product depends on the supply along with the number of such products available in the marketplace.
supply and demand
Monetary worth based on desirability.
Value
Characteristics of value
DUST: Demand, utility, scarcity, transferability
A property’s asking, offer or sale price.
Market price
