Pratice Chapter 13 - Appraisal of Property / Property Valuation Flashcards
Appraisal
An estimate of the value of property resulting from an analysis of facts about the property. An opinion of value.
Appraiser
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.
Assessed Value
A valuation placed upon a piece of property by a public authority as a basis for levying taxes on the property.
Cost
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).
Demand
The supply of willing and able buyers in the marketplace or lack thereof.
Insured Value
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.
Investment Value
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.
Market Value
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.
Price
The amount a purchaser agrees to pay and a seller agrees to accept in an arms length transaction.
Scarcity
A lack of supply
Transferability
The ability to transfer ownership of property from one person to another.
Utility
The ability to give satisfaction and/or excite desire for possession.
Value
Present worth of future benefits arising out of ownership to typical users/investors.
Highest and Best Use
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.
Principle of Anticipation
Affirms that value is created by anticipated benefits to be derived in the future.
Principle of Change
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.
Principle of Conformity
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.
Principle of Contribution
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.
Principle of Progression
The worth of a lesser valued residence tends to be enhanced by association with higher valued residences in the same area.
Principle of Substitution
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.
Sales Comparison Approach
A valuation method which compares a subject property’s characteristics with those of comparable properties which have recently sold in similar transactions.
Cost Approach
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.
Reconciliation
The final stage in the appraisal process where the appraiser reviews the data and estimates the subject property’s value.
Capitalization Rate
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
Yield
A return on investment.
Leverage
The use of borrowed capital (mortgage) to increase the potential return of an investment.
Time Value of Money
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.
