Session 14

Question 1

Anticipation

Answer 1

An economic principle that says value is created by the expectation of future benefits, such as profit on resale, pleasure, tax shelter, production, etc. Anticipation is the foundation of the income approach to appraisal.

Question 2

Appraisal

Answer 2

An opinion or estimate of value of real property as of a certain date, as supported by objective evidence and data.

Question 3

Arms length transaction

Answer 3

A transaction that occurred under typical conditions in the marketplace, with each of the parties acting in their own best interests.

Question 4

Assemblage

Answer 4

The combining of two or more parcels of land into one larger parcel, usually to increase the usefulness of the land.

Question 5

Conformity

Answer 5

An economic principle that says at home usually achieved maximum value when it is surrounded by homes similar in style and function.

Question 6

Contribution

Answer 6

The theory that a specific item or feature of a property is worth only what it actually contributes in value to that parcel of real estate.

Question 7

Cost

Answer 7

The dollars needed to develop, produce, or build some thing.

Question 8

Financial institutions reform, recovery, and enforcement act (FIRREA)

Answer 8

A federal law that imposes qualification criteria for appraisers performing appraisals and connection to federally regulated loans.

Question 9

Highest and best use

Answer 9

The most profitable, legally permitted, feasible, and physically possible use of a piece of property.

Question 10

Market price

Answer 10

The contract price for which a property actually sold.

Question 11

Market value

Answer 11

The most probable price of property should bring on an open and competitive market one sold two ready, willing, and able buyer through an arm’s-length transaction.

Question 12

Plottage increment

Answer 12

The assemblage of two or more parcels of land into one larger parcel resulting in an increase in value over the combined value of individual parcels.

Question 13

Price

Answer 13

Do you mount a ready, willing, and able buyer agrees to pay for a property and the seller agrees to accept.

Question 14

Progression

Answer 14

A principle that says the value of a smaller and less expensive home as positively affected when it is surrounded by larger and more expensive homes. Usually said about the worst home in the best area.

Question 15

Reconciliation

Answer 15

The final step in the appraisal process that involves analyzing the values derived from the different appraisal approaches to arrive at a final option of value also called: correlation.

Question 16

Regression

Answer 16

A principle that says the value of a larger, more expensive home is negatively affected when it is surrounded by smaller, less expensive homes. Usually sad about the best home in the worst area.

Question 17

Substitution

Answer 17

An economic theory that says an informed buyer will not pay more for a property, or a future and a property then a comparable substitute.

Question 18

Supply and demand

Answer 18

An economic principle that says that for all products, goods, and services one supply exceeds demand prices will fall and when demand exceeds supply, prices will rise.

Question 19

Uniform standards of professional appraisal (USPAP)

Answer 19

Professional appraisal standards developed by the appraisal foundation, and I recognized throughout the United States has excepted standards of appraisal practice.

Question 20

Sales comparison approach

Answer 20

An appraisal approach that estimates the value of real property by performing a market analysis of the comparable properties in the area where the subject property is located. Data are collected and adjustments made for differences. Also called: market analysis approach

Question 21

Appreciation

Answer 21

An increase in the value of property due to a positive improvement in the area or the Elimination of negative factors.

Question 22

Cost

Answer 22

The dollars needed to develop, produce, or build something.

Question 23

Cost approach

Answer 23

A method of appraisal based on reproduction cost of an improvement, minus any depreciation, plus site value. Often used one comparable sales cannot be found, as with unique properties or public buildings, or for custom homes or new construction. Also called: summation method.

Question 24

Depreciation

Answer 24

The decrease in value to real property improvements caused by deterioration or obsolescence.

Question 25

Economic life

Answer 25

The time during which a building can be used for its intended purpose, or generate more income that is paid out for operating expenses.

Question 26

Economic obsolescence

Answer 26

A loss of value due to a change in external events or factors affecting a piece of real property; cannot be cured by the owner. Also called: external obsolescence or social obsolescence.

Question 27

Effective age

Answer 27

The age the structure appears to be based on physical wear and tear, functional design, and External factors. Effective age is generally not the same as actual or chronological age, except in new construction.

Question 28

Replacement cost

Answer 28

The method of determining the value of an improvement under the cost approach in an appraisal by building the structure using current materials and methods of construction.

Question 29

Reproduction cost

Answer 29

The method of determining the value of an improvement under the cost approach in an appraisal by building an exact replica of the structure using authentic materials.

Question 30

Square-foot living space

Answer 30

The measurement in feet of the above grade interior area of a structure that is livable with proper access, heating and in most cases cooling.

Question 31

Square footage under roof

Answer 31

The measurement and feet of any area directly under some type of covering generally referring to support beams of a structure and all the area which it covers.

Question 32

Capitalization

Answer 32

A method of determining the present value of income property by discounting the annual net income by a commonly used rate of return. Income / Rate = Value (IRV)

Question 33

Capitalization rate

Answer 33

A rate of return, stated as a percent, used to drive a value opinion from the anticipated net operating income a property could generate. It is used for direct capitalization in the income approach. Also called: Cap Rate.

Question 34

Effective gross income (EGI)

Answer 34

Potential gross income less vacancy in collection losses

Question 35

Gross rent multiplier (GRM)

Answer 35

He conversion factor derive from the sale price of a comparable rental property divided by its gross monthly rent. This factor is multiplied by the estimated rent of the subject to estimate its value.

Question 36

Income approach

Answer 36

And appraisal better that estimates the value of real estate by analyzing the amount of revenue, or income, the property currently generates, or could generate, often comparing the subject property to other similar properties.

Question 37

IRV formula

Answer 37

A simple calculation of finding the net operating income, the rate, or the value of an investment property. When any two factors are known, the third can be determined.