Session 14 Flashcards
Anticipation
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.
Appraisal
An opinion or estimate of value of real property as of a certain date, as supported by objective evidence and data.
Arms length transaction
A transaction that occurred under typical conditions in the marketplace, with each of the parties acting in their own best interests.
Assemblage
The combining of two or more parcels of land into one larger parcel, usually to increase the usefulness of the land.
Conformity
An economic principle that says at home usually achieved maximum value when it is surrounded by homes similar in style and function.
Contribution
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.
Cost
The dollars needed to develop, produce, or build some thing.
Financial institutions reform, recovery, and enforcement act (FIRREA)
A federal law that imposes qualification criteria for appraisers performing appraisals and connection to federally regulated loans.
Highest and best use
The most profitable, legally permitted, feasible, and physically possible use of a piece of property.
Market price
The contract price for which a property actually sold.
Market value
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.
Plottage increment
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.
Price
Do you mount a ready, willing, and able buyer agrees to pay for a property and the seller agrees to accept.
Progression
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.
Reconciliation
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.
Regression
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.
Substitution
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.
Supply and demand
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.
Uniform standards of professional appraisal (USPAP)
Professional appraisal standards developed by the appraisal foundation, and I recognized throughout the United States has excepted standards of appraisal practice.
Sales comparison approach
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
Appreciation
An increase in the value of property due to a positive improvement in the area or the Elimination of negative factors.
Cost
The dollars needed to develop, produce, or build something.
Cost approach
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.
Depreciation
The decrease in value to real property improvements caused by deterioration or obsolescence.
Economic life
The time during which a building can be used for its intended purpose, or generate more income that is paid out for operating expenses.
Economic obsolescence
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.
Effective age
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.
Replacement cost
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.
Reproduction cost
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.
Square-foot living space
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.
Square footage under roof
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.
Capitalization
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)
Capitalization rate
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.
Effective gross income (EGI)
Potential gross income less vacancy in collection losses
Gross rent multiplier (GRM)
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.
Income approach
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.
IRV formula
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.
