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
