Module 11 Vocab Flashcards
One of the economic principles. ____ is the perception that value is created by the expectation of benefits to be derived in the future. Present value is affected by expected future benefits or detriments.
Anticipation
Note: It is always focused on the future, never on the past or present.
One of the economic principles. The principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.
This principle’s focuses on land and improvements. When the combination of land and improvements are optimal, economic ____ is achieved based on the assumption that no marginal benefit or utility is gained by adding another unit of capital.
balance
Subprinciples of balance:
- increasing and decreasing returns
- contribution
- surplus productivity
- conformity
One of the economic principles. ____ is the result of the cause and effect relationship among the forces that influence real property value.
change
Real estate markets are dynamic and subject to constant and immediate change. It is inevitable and continuous but can be gradual and not readily perceived or observed by the appraiser. It is not always predictable.
One of the economic principles. ____ is the interaction of supply and demand. Moderate profits attract healthy ____. Excess profits can lead to ruinous ___.
competition
Notes:
1. Between purchasers or tenants, the interactive efforts of two or more potential purchasers or tenants to secure a sale or lease.
- Between sellers or landlords, the interactive efforts of two or more potential sellers or landlords to secure a sale or lease.
- Among competitive properties, the level of productivity and amenities or benefits characteristic of each property considering the advantageous or disadvantageous position of the property relative to the competitors.
A subprinciple of the economic principle of balance. The appraisal principle that real estate value is created and sustained when the characteristics of a property _____ to the demands of its market.
conformity
Notes:
Subprincples:
- principle of progression
- principle of regression
The concept that land cannot be valued on the basis of one use while the improvements are valued on the basis of another use.
consistent use
A subprinciple of the economic principle of balance. The concept that the value of a particular component is measured in terms of the amount it adds to the value of the whole property or as the amount that its absence would detract from the value of the whole
contribution
Land that is not needed to serve or support the existing use. The highest and best use of it may or may not be the same as the highest and best use of the improved parcel. ______ has the potential to be sold separately and is valued separately.
excess land
One of the economic principles that states economies outside a property have a positive effect on its value while diseconomies outside a property have a negative
effect on its value.
externalities
The reasonably probable use of a property that results
in the highest value.
highest and best use
Note: The four criteria that the highest and best use must meet are:
- legal permissibility
- physical possibility
- financial feasibility
- maximum productivity
The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements.
highest and best use as though vacant
The use that should be made of a property as it exists. An existing improvement should be renovated or retained as is so long as it continues to contribute to the total market value of the property.
highest and best use property as improved
The temporary use to which a site or improved property is put until a different use becomes maximally productive.
interim use
A subprinciple of the economic principle of balance. The concept that successive increments of one or more agents of production added to fixed amounts of the other agents will enhance income or value (in dollars, benefits, or amenities) at an increasing rate until a maximum return is reached. Beyond a certain point, each additional unit will add less income or value than the unit before it.
increasing and decreasing returns (aka the law of increasing returns or law of decreasing returns)
The balance point where supply and demand meet. The theoretical balance where demand and supply for a property, good, or service are equal.
market equilibrium
Note: Over the long run, most markets move towards equilibrium but a balance is seldom achieved for any period of time.
the cost of options forgone or not chosen
opportunity cost
a sub principle of conformity that states a lower-priced property will be worth more in a higher-priced neighborhood than it would in a neighborhood of comparable properties
progression
a sub principle of conformity that states a higher-priced property will be worth less in a lower-priced neighborhood than it would in a neighborhood of comparable properties
regression
One of the economic principles. The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution.
Assumes rational, prudent market behavior with no undue cost due to delay. The premise is that a buyer will not pay more for a property than for another that is equally desirable.
substitution
The economic principle as applied within real estate appraisal context states that the price of real property varies directly, but not necessarily proportionately with demand and inversely but not necessarily proportionately with supply.
supply and demand
Note:
- the interaction of buyers and sellers affects value directly
- the interaction of landlords and tenants affects value indirectly because there is no transfer in title; however, negotiated rents still have a value impact on the investment property.
- Supply works in conjunction with scarcity (one of the 4 factors of value)
- Demand: the ability and desire to purchase (or lease) goods and services
Land that is not currently needed to support the existing use but cannot be separated from the property and sold off for another use. ____ does not have an independent highest and best use and may or may not
contribute value to the improved parcel.
surplus land
All excess land could be surplus land, but surplus land is never excess land. The market is the deciding factor on whether excess land could turn out to be surplus land. However, a reverse application where surplus land
could become excess land is not possible, because surplus land cannot be sold off separately.
The net income that remains after the costs of
various agents of production have been paid.
surplus productivity
the ability of an individual or group to participate in a market (i.e. to acquire goods and services with cash or its equivalent)
Effective purchasing power
The desire to buy coupled with the ability to pay.
When the term demand is used in economics or real estate analysis, _______ is usually presumed.
Effective demand
The four criteria that the highest and best use must meet are:
- legal permissibility
- physical possibility
- financial feasibility
- maximum productivity
the compatibility between a property and its surroundings
external conformity
the condition that exists when labor, capital, coordination, and land are appropriately combined in a property.
internal conformity
