Key Terms Unit 16

Question 1

Loss in value resulting from property’s physical deterioration, external depreciation, and functional obsolescence.

Answer 1

Accrued depreciation

Question 2

Value is created by the expectation that certain events will occur.

Answer 2

Anticipation

Question 3

An opinion of value based on supportable evidence and approved methods.

Answer 3

Appraisal

Question 4

Took effect in October 15, 2010 and initiated by Fannie Mae. Regulations that must be followed by appraisers to ensure accurate and objective appraisals.

Answer 4

Appraiser Independence Requirements (AIR)

Question 5

The process of merging two separately owned lots under one owner.

Answer 5

Assemblage

Question 6

Less expensive than an appraisal, might be requested by a lender when property is refinanced.

Answer 6

Broker’s price opinion (BPO)

Question 7

Comparing the relationship of net operating income with sales prices of similar properties that have sold in the current market.

Answer 7

Capitalization rate

Question 8

No physical or economic condition remains constant.

Answer 8

Change

Question 9

The interaction of supply and demand creates___

Answer 9

Competition

Question 10

The maximum value is created when a property is in harmony with its surroundings.

Answer 10

Conformity

Question 11

The value of any part of a property is measured by its effect on the value of the whole parcel.

Answer 11

Contribution

Question 12

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

Answer 12

Cost approach

Question 13

Loss of value for any reason. The condition that adversely affects the value of an improvement to real property.

Answer 13

Depreciation

Question 14

The period during which it is expected to remain useful for its original intended purpose.

Answer 14

Economic life

Question 15

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.

Answer 15

External obsolecence

Question 16

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.

Answer 16

Functional obsolescence

Question 17

If a buyer is interested in purchasing five or more units, a ___ based on annual income could be used.

Answer 17

Gross income multiplier (GIM)

sales price + annual gross income = GIM

Question 18

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.

Answer 18

Gross rent multiplier (GRM)

sales price + annual gross rent = GRM

Question 19

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.

Answer 19

Highest and best use

Question 20

Is based on the present value of the right to future income. GIVEN= gross, income, vacancy, expenses, net operating income

Answer 20

Income approach

Question 21

At the point where additional improvements do not increase income or value.

Answer 21

law of diminishing returns

Question 22

As long as money spent on improvements produces and increase in income and value.

Answer 22

law of increasing returns

Question 23

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.

Answer 23

market data approach

Question 24

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.

Answer 24

market value

Question 25

Deduct the annual operating expenses from the effective gross income to get ______.

Answer 25

Net operating income (NOI)

Question 26

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.

Answer 26

Physical deterioration

Question 27

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.

Answer 27

Plottage

Question 28

The value of a modest home would be higher if it were located among larger, fancier properties.

Answer 28

Progression

Question 29

The act of analyzing and effectively weighing the findings from the three approaches.

Answer 29

Reconciliation

Question 30

The worth of a better-quality property is adversely affected by the presence of a lesser-quality property.

Answer 30

Regression

Question 31

Also known as the market data approach, value is obtained by comparing the property being appraised- the subject property- with recently sold comparable properties.

Answer 31

sales comparison approach

Question 32

This is adjusted to reflect the impact on value of any differences between the subject and comparable.

Answer 32

sales price

Question 33

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.

Answer 33

Substitution

Question 34

The value of a product depends on the supply along with the number of such products available in the marketplace.

Answer 34

supply and demand

Question 35

Monetary worth based on desirability.

Answer 35

Value

Question 36

Characteristics of value

Answer 36

DUST: Demand, utility, scarcity, transferability

Question 37

A property’s asking, offer or sale price.

Answer 37

Market price