Real Estate Unit 16 Flashcards
accrued depreciation
loss in a property’s value resulting from physical deterioration, external depreciation, and functional obsolescence
anticipation
the appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property
appraisal
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
appraisal report
an opinion of a property’s market value given to a lender or client with detailed market information
Appraiser Independence Requirements (AIR)
regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals
assemblage
the combining of 2 or more adjoining lots into 1 larger tract to increase their total value
broker’s price opinion (BPO)
an opinion of real estate value commissioned by a bank or an attorney and provided by a broker
capitalization rate
the rate of return a property will produce on the owner’s investment
change
the appraisal principle that holds that no physical or economic condition remains constant
comparables
properties used in an appraisal report that are substantially equivalent to the subject property
competent party
a person who has the capacity to be engaged in a legal contract; being of sound mind and body
competition
the appraisal principle stating that excess profits generate competition
conformity
the appraisal principle holding that the greater the similarity among properties in an area, the better they will hold their value
contribution
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
cost approach
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
depreciation
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
economic life
the number of years during which an improvement will add value to land
eviction
a legal process to oust a person from possession of real estate
external depreciation
reduction in a property’s value caused by outside factors (i.e. those that are off the property)
external obsolescence
incurable depreciation caused by factors not on the subject property, such as environmental or economic factors
Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
this act restructured the savings and loan association regulatory system; enacted in response to the savings and loan crisis of the 1980s
functional obsolescence
a loss of value to an improvement to real estate arising from problems of design or utility
gross income multiplier (GIM)
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
gross rent multiplier
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
highest and best use
the legally permitted and physically possible use of a property that would produce the greatest net income and, thereby, develop the highest value
income approach
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
law of diminishing returns
point at which additional property improvements do not increase the property’s income or value
law of increasing returns
applies as long as money being spent on property improvements produces an increase in the property’s income or value
market value
the most probable price that a property would bring in an arm’s-length transaction under normal conditions on the open market
market data approach
also known as the sales comparison approach. an estimate of value obtained by comparing property being appraised with recently sold comparable properties
net operating income (NOI)
the income projected for an income-producing property after deducting anticipated vacancy and collection losses and operating expenses
obsolescence
the loss of value due to property features that are outmoded or less useful. obsolescence may be functional or external
physical deterioration
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
plottage
the increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot
progression
an appraisal principle that the value of a lesser-quality property is favorably affected by the presence of a better-quality property
reconciliation
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
regression
an appraisal principle that the value of a better-quality property is affected adversely by the presence of a lesser-quality property
sales comparison approach
the process of estimating the value of a property by examining and comparing sales and listings of comparable properties
straight-line depreciation
depreciation taken periodically in equal amounts over an asset’s useful life
substitution
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
Uniform Standards of Professional Appraisal Practice (USPAP)
a set of standards developed by the Appraisal Foundation that details information required for a property appraisal
Uniform Residential Appraisal Report (URAR)
the appraisal form created by Fannie Mae and Freddie Mac that is required for most residential real estate transactions
