Real Estate Unit 16

Question 1

accrued depreciation

Answer 1

loss in a property’s value resulting from physical deterioration, external depreciation, and functional obsolescence

Question 2

anticipation

Answer 2

the appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property

Question 3

appraisal

Answer 3

an estimate of the quantity, quality, or value of something. the process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value

Question 4

appraisal report

Answer 4

an opinion of a property’s market value given to a lender or client with detailed market information

Question 5

Appraiser Independence Requirements (AIR)

Answer 5

regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals

Question 6

assemblage

Answer 6

the combining of 2 or more adjoining lots into 1 larger tract to increase their total value

Question 7

broker’s price opinion (BPO)

Answer 7

an opinion of real estate value commissioned by a bank or an attorney and provided by a broker

Question 8

capitalization rate

Answer 8

the rate of return a property will produce on the owner’s investment

Question 9

change

Answer 9

the appraisal principle that holds that no physical or economic condition remains constant

Question 10

comparables

Answer 10

properties used in an appraisal report that are substantially equivalent to the subject property

Question 11

competent party

Answer 11

a person who has the capacity to be engaged in a legal contract; being of sound mind and body

Question 12

competition

Answer 12

the appraisal principle stating that excess profits generate competition

Question 13

conformity

Answer 13

the appraisal principle holding that the greater the similarity among properties in an area, the better they will hold their value

Question 14

contribution

Answer 14

the appraisal principle stating that the value of any competent of a property is what it gives to the value of the whole or what its absence detracts from that value

Question 15

cost approach

Answer 15

the process of estimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation

Question 16

depreciation

Answer 16

1) in appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence, and external obsolescence. 2) in real estate investment, a deduction for tax purposes taken over the period of ownership of income property, based on the property’s acquisition cost

Question 17

economic life

Answer 17

the number of years during which an improvement will add value to land

Question 18

eviction

Answer 18

a legal process to oust a person from possession of real estate

Question 19

external depreciation

Answer 19

reduction in a property’s value caused by outside factors (i.e. those that are off the property)

Question 20

external obsolescence

Answer 20

incurable depreciation caused by factors not on the subject property, such as environmental or economic factors

Question 21

Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)

Answer 21

this act restructured the savings and loan association regulatory system; enacted in response to the savings and loan crisis of the 1980s

Question 22

functional obsolescence

Answer 22

a loss of value to an improvement to real estate arising from problems of design or utility

Question 23

gross income multiplier (GIM)

Answer 23

a figure used as a multiplier of the gross annual income of a property to produce an estimate of the property’s value; usually used for commercial property

Question 24

gross rent multiplier

Answer 24

the figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property’s value; usually used for single-family residential property

Question 25

highest and best use

Answer 25

the legally permitted and physically possible use of a property that would produce the greatest net income and, thereby, develop the highest value

Question 26

income approach

Answer 26

the process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life

Question 27

law of diminishing returns

Answer 27

point at which additional property improvements do not increase the property’s income or value

Question 28

law of increasing returns

Answer 28

applies as long as money being spent on property improvements produces an increase in the property’s income or value

Question 29

market value

Answer 29

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

Question 30

market data approach

Answer 30

also known as the sales comparison approach. an estimate of value obtained by comparing property being appraised with recently sold comparable properties

Question 31

net operating income (NOI)

Answer 31

the income projected for an income-producing property after deducting anticipated vacancy and collection losses and operating expenses

Question 32

obsolescence

Answer 32

the loss of value due to property features that are outmoded or less useful. obsolescence may be functional or external

Question 33

physical deterioration

Answer 33

a reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear

Question 34

plottage

Answer 34

the increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot

Question 35

progression

Answer 35

an appraisal principle that the value of a lesser-quality property is favorably affected by the presence of a better-quality property

Question 36

reconciliation

Answer 36

the final step in the appraisal process, in which the appraiser considers the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final opinion of market value for the subject property

Question 37

regression

Answer 37

an appraisal principle that the value of a better-quality property is affected adversely by the presence of a lesser-quality property

Question 38

sales comparison approach

Answer 38

the process of estimating the value of a property by examining and comparing sales and listings of comparable properties

Question 39

straight-line depreciation

Answer 39

depreciation taken periodically in equal amounts over an asset’s useful life

Question 40

substitution

Answer 40

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

Question 41

Uniform Standards of Professional Appraisal Practice (USPAP)

Answer 41

a set of standards developed by the Appraisal Foundation that details information required for a property appraisal

Question 42

Uniform Residential Appraisal Report (URAR)

Answer 42

the appraisal form created by Fannie Mae and Freddie Mac that is required for most residential real estate transactions