Principles 13 Flashcards
Equilibrium
Period of stability in the life cycle of a building or neighborhood in which little change is evident
External obsolescence
Economic or environmental obsolescence; loss in value due to outside causes, such as changes in nearby land use
Federally related transaction
Transaction that involves a federally chartered or insured lender.
Functional obsolescence
Loss in value due to adverse factors within a structure that effect its marketability, such as its design, layout, or utility.
Gentrification
Renovation of run-down properties in neighborhoods that are in decline.
Gross income multiplier (GIM)
- gross rent multiplier
- a number derived by dividing the sales price of a comparable property by the income it produces, which then is multiplied by the gross income produced by the subject property to derive an estimate of value
Growth
Period of life cycle of a neighborhood in which property development is ongoing.
Highest and best use
In appraising real estate, the most profitable, physically possible, and legally permissible use for the property under consideration.
Income capitalization approach
Appraisal method in which the actual or likely net operating income of property is divided by its expected rate of return (capitalization rate) to arrive at an estimate of market value
Index method
Way of estimating building reproduction cost by multiplying the original cost of the subject building by a factor that represents the percentage change in construction costs generally from the time of construction to the time of valuation
Market rent
The rent that could be charged for property at the present time, based on demand and the number of available properties.
Market value
The most probable price property would bring in an arm’s-length transaction under normal conditions on the open market.
Net operating income
- profit
- the money remaining after expenses are deducted from income.
Observed condition method
- Breakdown method
- depreciation computed by estimating the loss in value caused by every item of depreciation, whether curable or incurable
Physical deterioration
Loss in value brought about by wear and tear, disintegration, use, and action of the elements.
Potential gross income
The maximum income that property is capable of producing
Principle of progression
The worth of a less valuable building tends to be enhanced by proximity to buildings of greater value
Quantity survey method
-Way of estimating building reproduction cost by making a thorough itemization of all construction costs, both direct(material and labor) and indirect (permits, overhead, profit), then totaling those costs.
Reconciliation
In appraising, the final step, in which the estimates of value reached by each of the 3 appraisal approaches (sales comparison, cost, and income capitalization) are weighed in light of the type of property being appraised, the purpose of the appraisal, and other factors, to arrive at a final conclusion of value.
Principle of Regression
A building’s value will decline if the buildings around it have a lower value
Replacement cost
The cost of a new building using modern construction techniques, design, and materials but having the same utility as the subject property.
Reproduction cost
The cost of anew building of exactly the same design and materials as the subject property.
Restricted use report
Property appraisal that will be limited in either the method of valuation used or the property interests value.
Restricted use report
Property appraisal that will be limited in either the method of valuation used or the property interests valued.
Revitalization
Period of property renovation and rebuilding in which neighborhood begins a new life cycle.
Sales comparison approach
- Market comparison approach
- market data approach
- appraisal method in which the sales prices of properties that are comparable in construction and location to the subject property are analyzed and adjusted to reflect differences between the comparables and the subject
Scarcity
- Relative lack of supply of a product
- one of the four basic elements of value that also include demand, utility, and transferability.
Self-contained report
- Narrative report
- Most comprehensive type of appraisal report, including a thorough statement of the background data supporting the opinion of value
Site value
Determination of land value exclusive of improvements
Square-foot method
Way of finding reproduction cost by multiplying the current cost per square foot of a comparable building by the number of square feet in the subject building.
Straight-line method
Depreciation computed at a constant rate over the estimated useful life of the improvement
Substitution
Principle of market value tends to be set by the present or recent cost of an equally desirable and valuable property, comparable in construction, utility, or both
Summary report
Appraisal report using a standardized form, such as the uniform residential appraisal report (URAR) developed by Fannie Mac and Freddie Mac.
Supply and demand
Takes into account the effect on market value of the relationship between the number of properties on the market at a given time and the number of potential buyers.
Transferability
One of the four elements that must be present for a market to be created: demand, utility, scarcity , and transferability
Uniform Residential Appraisal Report (URAR)
Summary form of appraisal report developed and required by Fannie Mae and Freddie Mac
Unit-in-place method
- Way of estimating building reproduction cost by adding the construction cost per unit of measure of each of the component parts of the subject property
- each unit cost includes material, labor, overhead, and builder’s profit
Utility
One of the four elements necessary to create a market
Value in exchange
The value of property expressed as the kind and amount of other property that would be acceptable in a transfer of ownership.
Value in use
The subjective value of property to its present owner, as opposed to market value, which should be objective.
