Principles 13

Question 1

Equilibrium

Answer 1

Period of stability in the life cycle of a building or neighborhood in which little change is evident

Question 2

External obsolescence

Answer 2

Economic or environmental obsolescence; loss in value due to outside causes, such as changes in nearby land use

Question 3

Federally related transaction

Answer 3

Transaction that involves a federally chartered or insured lender.

Question 4

Functional obsolescence

Answer 4

Loss in value due to adverse factors within a structure that effect its marketability, such as its design, layout, or utility.

Question 5

Gentrification

Answer 5

Renovation of run-down properties in neighborhoods that are in decline.

Question 6

Gross income multiplier (GIM)

Answer 6

• 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

Question 7

Growth

Answer 7

Period of life cycle of a neighborhood in which property development is ongoing.

Question 8

Highest and best use

Answer 8

In appraising real estate, the most profitable, physically possible, and legally permissible use for the property under consideration.

Question 9

Income capitalization approach

Answer 9

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

Question 10

Index method

Answer 10

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

Question 11

Market rent

Answer 11

The rent that could be charged for property at the present time, based on demand and the number of available properties.

Question 12

Market value

Answer 12

The most probable price property would bring in an arm’s-length transaction under normal conditions on the open market.

Question 13

Net operating income

Answer 13

• profit

- the money remaining after expenses are deducted from income.

Question 14

Observed condition method

Answer 14

• Breakdown method
• depreciation computed by estimating the loss in value caused by every item of depreciation, whether curable or incurable

Question 15

Physical deterioration

Answer 15

Loss in value brought about by wear and tear, disintegration, use, and action of the elements.

Question 16

Potential gross income

Answer 16

The maximum income that property is capable of producing

Question 17

Principle of progression

Answer 17

The worth of a less valuable building tends to be enhanced by proximity to buildings of greater value

Question 18

Quantity survey method

Answer 18

-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.

Question 19

Reconciliation

Answer 19

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.

Question 20

Principle of Regression

Answer 20

A building’s value will decline if the buildings around it have a lower value

Question 21

Replacement cost

Answer 21

The cost of a new building using modern construction techniques, design, and materials but having the same utility as the subject property.

Question 22

Reproduction cost

Answer 22

The cost of anew building of exactly the same design and materials as the subject property.

Question 23

Restricted use report

Answer 23

Property appraisal that will be limited in either the method of valuation used or the property interests value.

Question 24

Restricted use report

Answer 24

Property appraisal that will be limited in either the method of valuation used or the property interests valued.

Question 25

Revitalization

Answer 25

Period of property renovation and rebuilding in which neighborhood begins a new life cycle.

Question 26

Sales comparison approach

Answer 26

• 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

Question 27

Scarcity

Answer 27

• Relative lack of supply of a product

- one of the four basic elements of value that also include demand, utility, and transferability.

Question 28

Self-contained report

Answer 28

• Narrative report
• Most comprehensive type of appraisal report, including a thorough statement of the background data supporting the opinion of value

Question 29

Site value

Answer 29

Determination of land value exclusive of improvements

Question 30

Square-foot method

Answer 30

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.

Question 31

Straight-line method

Answer 31

Depreciation computed at a constant rate over the estimated useful life of the improvement

Question 32

Substitution

Answer 32

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

Question 33

Summary report

Answer 33

Appraisal report using a standardized form, such as the uniform residential appraisal report (URAR) developed by Fannie Mac and Freddie Mac.

Question 34

Supply and demand

Answer 34

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.

Question 35

Transferability

Answer 35

One of the four elements that must be present for a market to be created: demand, utility, scarcity , and transferability

Question 36

Uniform Residential Appraisal Report (URAR)

Answer 36

Summary form of appraisal report developed and required by Fannie Mae and Freddie Mac

Question 37

Unit-in-place method

Answer 37

• 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

Question 38

Utility

Answer 38

One of the four elements necessary to create a market

Question 39

Value in exchange

Answer 39

The value of property expressed as the kind and amount of other property that would be acceptable in a transfer of ownership.

Question 40

Value in use

Answer 40

The subjective value of property to its present owner, as opposed to market value, which should be objective.