Pratice Chapter 13 - Appraisal of Property / Property Valuation

Question 1

Appraisal

Answer 1

An estimate of the value of property resulting from an analysis of facts about the property. An opinion of value.

Question 2

Appraiser

Answer 2

One qualified by education, training and experience who is hired to estimate the value of real and personal property based on experience, judgment, facts, and use of formal appraisal process.

Question 3

Assessed Value

Answer 3

A valuation placed upon a piece of property by a public authority as a basis for levying taxes on the property.

Question 4

Cost

Answer 4

The total dollar expenditure for labor, materials, legal services, architectural design, financing, taxes during construction, interest, contractor’s overhead and profit, and entrepreneurial overhead and profit (may or may not equal value).

Question 5

Demand

Answer 5

The supply of willing and able buyers in the marketplace or lack thereof.

Question 6

Insured Value

Answer 6

The value of an asset or asset group that is covered by an insurance policy; can be estimated by deducting cost of non-insurable items (e.g. land value) from market value.

Question 7

Investment Value

Answer 7

The specific value of an investment to a particular investor or class of investors based on individual investment requirements; distinguished from market value, which is impersonal and detached.

Question 8

Market Value

Answer 8

The highest price in terms of money which a property will bring in a competitive and open market and under all conditions required for a fair sale, i.e., the buyer and seller acting prudently, knowledgeably and neither affected by undue pressures.

Question 9

Price

Answer 9

The amount a purchaser agrees to pay and a seller agrees to accept in an arms length transaction.

Question 10

Scarcity

Answer 10

A lack of supply

Question 11

Transferability

Answer 11

The ability to transfer ownership of property from one person to another.

Question 12

Utility

Answer 12

The ability to give satisfaction and/or excite desire for possession.

Question 13

Value

Answer 13

Present worth of future benefits arising out of ownership to typical users/investors.

Question 14

Highest and Best Use

Answer 14

An appraisal phrase meaning that use which at the time of an appraisal is most likely to produce the greatest net return to the land and/or buildings over a given period of time; that use which will produce the greatest amount of profit. This is the starting point for an appraisal.

Question 15

Principle of Anticipation

Answer 15

Affirms that value is created by anticipated benefits to be derived in the future.

Question 16

Principle of Change

Answer 16

Holds that it is the future, not the past, which is of prime importance in estimating value. Change is largely the result of cause and effect.

Question 17

Principle of Conformity

Answer 17

Holds that the maximum of value is realized when a reasonable degree of homogeneity of improvements is present. Use conformity is desirable, creating and maintaining higher values.

Question 18

Principle of Contribution

Answer 18

A component part of a property is valued in proportion to its contribution to the value of the whole. Holds that maximum values are achieved when the improvements on a site produce the highest (net) return, commensurate with the investment.

Question 19

Principle of Progression

Answer 19

The worth of a lesser valued residence tends to be enhanced by association with higher valued residences in the same area.

Question 20

Principle of Substitution

Answer 20

Affirms that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute property, assuming no costly delay is encountered in making the substitution.

Question 21

Sales Comparison Approach

Answer 21

A valuation method which compares a subject property’s characteristics with those of comparable properties which have recently sold in similar transactions.

Question 22

Cost Approach

Answer 22

An analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting therefrom the estimated accrued depreciation, then adding the market value of the land.

Question 23

Reconciliation

Answer 23

The final stage in the appraisal process where the appraiser reviews the data and estimates the subject property’s value.

Question 24

Capitalization Rate

Answer 24

The rate of interest which is considered a reasonable return on the investment, and used in the process of determining value based upon net income.
Capitalization Rate = NOI / Purchase Price

Question 25

Yield

Answer 25

A return on investment.

Question 26

Leverage

Answer 26

The use of borrowed capital (mortgage) to increase the potential return of an investment.

Question 27

Time Value of Money

Answer 27

The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.