Terms & Definitions Flashcards
The most common way appraisers estimate a property valuation by analyzing comparable properties
Sales Comparison Approach
This valuation approach is used more often when there aren’t as many/ as applicable comparable ales available
Cost Approach
This valuation approach is used to estimate how much a property is worth based on the cost to build.
Cost Approach
This valuation approach is used to estimate value based on the property’s generated income
Income Capitalization Method
This Income Capitalization technique is used for apartments and commercial properties. The appraiser calculates the net operating income (NOI) and subtracting expenses
Direct Capitalization
This income capitalization technique is used on single family rental properties and small multifamily rentals. The appraiser looks at the relationship between local rents and local home prices to determine how many times the monthly rent investors are paying as a purchase price.
Gross Rent Multiplier
This cost approach considers what a replica of a property would cost to be built and gives attention to the use of original materials
Reproduction costs
This cost approach considers what a new structure of a similar function would cost using newer materials and utilizing current construction methods and updated designs.
Replacement costs
The right of the government to use private property for public use, with payment of compensation.
Eminent Domain
The RIGHT of the government to take ownership of an estate
Escheat
A legal situation in which the title to a specific piece land remains with the landowner, but another person or organization is given the right to use that land for a distinct purpose.
Easement
The seizing of a private property by a government for a public purpose.
Condemnation
This gives an individual or entity a claim to a property until a debt is paid off. If the debt goes unpaid, they have the right to take it back.
Lien
Using a house/property as collateral until a mortgage is paid off
Mortgage Lien
This technique was developed in order to evaluate the highest and best use for a particular piece of land
Land Residual Technique
Using this technique, if the proposed use of the property is its highest and best use, the value of the building should equal the cost of construction. The value of building is based on the construction costs.
Land Residual Technique
This formula is associated with which technique?
Land value = cash flow generated by land / land capitalization rate
Land Residual Technique
This formula is associated with which technique?
Building Value = cash flow generated by building / building capitalization rate
Direct Capitalization
This technique is used to estimate the reproduction costs of a structure. The method involves estimating the cost of producing and stalling individual components.
Unit-In-Place Method
One who estimates officially the worth or value or quality of things
Appraiser
A valuation service performed by an individual acting as an appraiser
Appraisal Practice
Having adequate ability to perform an assignment and produce credible results
Competency
The first step of the valuation process
Identify the problem
The type and extent if research and analyses in an assignment
Scope of work
The right to undisturbed use and control of designated air space above a specific land area
Air Rights
Articles that was once personal property but has been attached to the land or building and has become part of the real estate
Fixtures
Any permanent structure on real property, or any work on the property which increases its value
Improvement
Divided or undivided rights in real estate that represent less than the whole interest
Partial Interests
Identifiable tangible objects that are considered by the general public as being “personal”
Personal Property
Interests, benefits, and rights inherit in the ownership of real estate
Real Property
Rights include land, water, or anything attached to the land, natural or man-made
Surface Rights
Rights include land, water, or anything attached to the land, natural or man-made
Trade Fixtures
Provision written into a deed that limits the use of land, usually remains in effect when title passes to next owner
Deed Restriction
The right to use another’s land for a stated purpose
Easement
Has both dominant and servient estates
Easement Appurtenant
Benefits a legal person or entity and not a particular tract of land
Easement in gross
Trespassing on the domain of another
Encroachment
Most complete form of ownership
Fee Simple
Ownership interest held by a landlord (lessor) with rights of used and occupancy conveyed by lease to others
Leased fee interest
Someone who grants a lease to someone else
Lessor
Someone who makes a payment or series of payments in return for the use of an asset
Lessee
Rights of use, control, and occupancy, limited to the lifetime of a party (or life tenant)
Life Estate
An ownership of a temporary right to hold land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor
Leasehold Estate
A claim or liability that affect or limits the title to a property
Encumbrance
System that refers to parcels’ lot and block numbers, which appear on recorded maps and plats of subdivided land
Lot and Block
System that refers to the parcel’s boundaries, formed by the POB, bounds, and metes
Metes and Bounds
This measurement includes direction and distance.
Metes
This measurement includes the angular direction between each point
Bounds
This type of ownership owns the real estate and offers shares to prospective tenants
Cooperative Ownership
Property is held by two or more people and has four types…
- tenancy in common
- join tenancy
- tenancy by the entirety
- community property
Co-Ownership
2 or more people own a property, assumed to be equally divided among the two
Tenancy in common
Ownership for married individuals. Each spouse has equal interest in property
Tenancy by the entirety
Right of survivorship; ownership is passed to surviving tenant
Joint Tenancy
Sole ownership by individual or entity where owner has no restrictions on how the property is sold to another party
Ownership is severalty
A building development built for complementary use
PUD
Planned Unit Development
Corporation or trust that combines capital from many investors to provide financing for all forms of real estate.
Real Estate Investment Trust (REIT)
Private or public partnership that pools funds for acquiring and developing real estate projects
Syndication Partnership
Real estate is transferred to another person to manage for benefit of a third party
Trust
3 types of trusts
Living
Testamentary
Land
This trust is created by agreement while property owner is alive
Living trust
This trust is established by will of property owner after their death
Testamentary Trust
Real estate is only asset of this trust
Land trust
Property taxation based on the value of a property
Ad Valorem Tax
Generally, liens follow priority order based on when they were created
Priority Lien
Lien that binds all assets of individual debtor(their property) to the lien
General Lien
Lien that is levied or attached to a specific piece of property
Specific Lien
Inherent power of gov’t to regulate property in order to protect public health, safety and general welfare
Police Power
Local laws that implement comprehensive plan and provide regulation and control of land and structures within a district
Zoning Ordinance
Legally binding agreement between two or more parties that represents their promise to do or not do a particular thing
Contract
A good faith deposit made by a purchaser as a consideration component of a binding contract
Earnest Money
A written, legal instrument that conveys an estate or interest in real property to someone else
Deed
This addresses potential issues a claim might get from a particular party, used to clear a defect in the title. Weakest form of a deed.
Quitclaim Deed
This binds the grantor a deed and heirs to defend to defend the title conveyed to the grantee and their heirs against lawful claims of all persons. The most powerful type of deed.
General Warranty Deed.
The lessor pays some or all of the operating expenses
Gross Lease
The tenant pays all operating expenses
Net Lease
A purchaser of real estate agrees to pay a portion of the purchase price when the contract is signed
Land Contract
Written document signed by a buyer and seller who agree to the transfer of ownership interests in real estate
Sales contract
Total dollar expenditure to develop an improvement
Cost
A person’s wish for an item to satisfy their needs or their wants beyond essential things
Desire
The ability of a person or group to participate in a market with cash or its equivalent
Effective Purchasing Power
Monetary relationship between properties and those who buy, sell, or use those properties
Value
A sale between unrelated parties under no duress
Arm’s length transaction
The date of the value opinion
Effective Datw
The time the property was available for sale in the market
Exposure Time
A financial payment, special benefit, or non-realty item included in the sale contract or rental agreement as an incentive
Concessions
Agents of Production
a. land
b. labor
c. capital
d. entrepreneurial coordination
Forces that influence value
- gov’t and legal
- economic
- social
- environmental and geographic
Result of the cause and effect relationship among forces that influence real property value
Principle of Change
Perception that value is created by expectation of benefits to be derived in the future
Principle of anticipation
Principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium
Principle of Balance
The interaction of supply and demand
Competition
Principle that real property value is created and sustained when the characteristics of a property conform to the demands of its market
Principle of Conformity
Concept that value of a particular component is measured in terms of the amount it adds to the value of the whole property or how much it would decrease the value if it did not exist
Contribution
A principle that economies outside a property have a positive effect on its value
Externalities
Reasonable, probable, and legal use of vacant land or improved property that is physically possible, appropriately supported, financially feasible, and results in the highest value
Highest and best use
Use of property based on the assumption that the parcel of land is vacant or can be made vacant
Highest and best use as though vacant
The cost of opportunities not chosen, like the cost of not buying a cheaper property
Opportunity Cost
Principle of conformity that states that value of an inferior property is enhanced by association with better properties of the same type
Progression
Principle of conformity that states that the value of a superior property is adversely affected by association with an inferior property of the same type
Regression
When several similar commodities, goods, or services are available, the cheapest one will attract the most demand
Substitution
The price of a real property varies directly, but not necessarily proportionately, with demand and inversely, but not nec. proportionately, with supply
Supply and demand
The central bank of the U.S. acting to provide the U.S. with a safe, flexible, and stable financial system
Federal Reserve
The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price
Liquidity
Where the interaction of supply and demand takes place
Market
Interaction of buyers and sellers who trade short-term instruments
Money Market
Interest earned on the original investment amount and on previously earned interest
Compound Interest
Interest in each period is calculated based on the original deposit or investment, and it doesn’t compound
Simple Interest
A neighborhood characterized by homogenous land use, i.e. apartment, commercial, industrial, agricultural
District
The area associated with a subject property that contains its direct competition
Market Area
A group of complementary land uses; a congruous grouping of inhabitants, buildings, or businesses
Neighborhood
The act or process of developing and communicating an opinion about another appraiser’s work
Appraisal Review
An assumption, directly related to a specific assignment, as of the effective date of the assignment results, which could alter the appraiser’s opinion if found to be false.
Extraordinary Assumption
A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used in for the purpose of analysis
Hypothetical Condition
The use of an appraiser’s reported appraisal, appraisal review, or appraisal consulting assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment
Intended Use
The client and any other party as identified, by name or type, as users of the appraisal, appraisal review, or appraisal consulting report
Intended User
Services pertaining to aspects of property value
Valuation Services
Estimated length of time a property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal.
Exposure Time
Information that covers the forces that affect property values, but are not directly related to a particular piece of property. Covers economic, governmental, social, and physical factors, and can be local or national
General Data
An assignment condition established by applicable law or regulation, which precludes an appraiser from complying with a part of USPAP
Jurisdictional Exception
A listing service whereby local member brokers agreed to share listings and commissions on property sold jointly
Multiple Listing Services (MLS)
Analyzing the values derived from the different appraisal approaches to arrive at the final opinion of value.
Reconcilation
Information that is relevant to the subject property. Two types of specific data are subject property data and comparable data
Specific Data
The documentation necessary to support the appraiser’s analysis, opinions, and conclusions
Workfile
A legal description for land, referencing principal meridians and base lines designated throughout the country
Government Survey System
Residential space that is finished, livable, and above grade.
Gross Living Area
Any dwelling unit built on a permanent chassis and attach to a permanent foundation system .
Manufactured Housing
Atypical motivations of the parties of a transaction
Conditions of a sale
An amount paid to a lender when a loan is made to make up the difference between the current market interest rate any rate a lender gives a borrower on a note.
Discount point
What tenants are actually paying rent, as stated in terms of the lease.
Contract rent
Potential gross income, less vacancy and collection losses.
Effective Gross Income
A factor that takes into account income derived from all sources of a property
Gross Income Multiplier (GIM)
A factor derived from comparable rental data, which is then used to develop an opinion of value of the subject property
Gross Rent Multiplier (GRM)
Income after expenses
Net Operating Income (NOI)
Day-to-day costs of operating a property, such as repairs and maintenance, but no including debt service or depreciation
Operating Expenses
Used to interpret a property’s single year net operating income to the property’s value using direct capitalization
Capitalization rate
The income that could be produced by a property in an ideal situation, with no vacancy or collection losses
Potential Gross Income
The total accumulated depreciation
Accrued Depreciation
A calculation that takes the effective age of a property and divides it by the total economic life
Age-Life Depreciation
A method for determining the cost of a building that uses the cost of recently built comparable buildings as a basis for estimating the cost of replacing the subject property
Comparative Unit Method
An appraisal method used to develop opinions regarding the value of real estate by estimating the cost new or replacing or reproducing the structure on the land minus depreciation and plus the value of the site
Cost Approach
Cost in a project that are not variable, such as labor and materials. Also called hard costs
Direct Costs
Considers a structure’s physical condition, how acceptably functional a structure is, and the external factors that influence a structure
Effective Age
A dollar value attributable for the expertise and efforts provided in the connection of the development, such as the entrepreneur’s expertise, skills, and involvement with development of the project
Entrepreneurial Incentive
When something outside the control of a property makes it less desirable. External obsolescence can be locational or economic
External Obsolescence
When a building is less desirable because of something inherent in the design of the structure
Functional Obsolescence
A method for determining the cost of a building by taking its original cost and multiplying that number by an index factor based on how long ago the building was constructed
Index Method
Costs in a project that are variable, also called soft costs
Indirect Costs
A method that specifies that number or quantity of each type of part or material used to build a structure
Quantity Survey Method
The period of usefulness that a building has remaining as of the effective date of the appraisal
Remaining Economic Life
A feature of an improvement that is more that is necessary for the operation of the improvement
Super-Adequacy
A method that estimates the cost of construction by calculating the unit cost of all component parts of a structure and adding these costs together.
Unit-in-place method
A site valuation method that separates the value of the land from the structures that sit on it by taking a ratio of the land or site value to the total property value based on a typical property in the area
Allocation Method
A site valuation method that takes an estimated value of improvements and subtracts it from the total sales price to derive a figure for the land value
Extraction Method
A method of valuing land based on the rent it generates in a given year divided by an appropriate capitalization rate
Ground Rent Capitalization Method
An income method of site valuation that assigns a certain part of the income produced by a property to the building or other improvement, and then attributes the remaining income to the land
Land Residual Method
A method of valuing land that could be developed, by taking the total projected market value of the finished project and subtracting all costs of development and entrepreneurial profit and incentive
Subdivision Development Method
A method of determining a recommended listing price by comparing the subject property to other homes that have sold, are presently for sales, or did not sell in a given area. Also called Comparative Market Analysis
Competitive Market Analysis (CMA)
Total floor area of a building measuring from the exterior of the walls – includes the superstructure (floor area) and the substructure (basement area)
Gross Building Area
Residential space that is finished, heated, and above grade. This excludes garages, finished basements, and storage areas. Finished attics CAN count
Gross Living Area
A standard appraisal report form used by lenders and appraisers; developed and approved by secondary mortgage market participants Frannie Mae and Freddie Mac
Uniform Residential Appraisal Report (URAR)
Defines all fields required for an appraisal submission for specific appraisal forms and standardizes definitions and responses for a key subset of fields to enhance data quality and promote consistency
Uniform Appraisal Dataset (UAD)
The value of the appraisal is supposed to be in the past
Retrospective Appraisal
The value of the appraisal is supposed to be in the future
Prospective Appraisal
4 Components of Highest and Best Use
Most profitable, Legally permitted, financially feasible, physically possible
How many sq feet in an acre?
43,560 sq ft
How many feet in a chain?
66 feet/ 4 rods
Most commonly used approach in residential appraising
Good method for non-income producing properties
Based on historical data
Sales Comparison Approach
A factor derived from comparable rental data, which is then used to develop an opinion of value of the subject property. This is conveyed in terms of a MONTHLY basis
Gross Rent Multiplier
NOI/Value = Rate
Capitalization Rate
3 forces that cause depreciation
Physical deterioration, functional obsolescence, external obsolescence
5 Methods for valuing a site
Sales comparison method Allocation method Extraction Method Land Residual Method Ground Rent Cap Rate Method
