Unit 16 Key Terms Flashcards
appraisal
The process of developing and communicating an opinion of a property’s value based on supportable evidence and approved methods as of a certain date.
assemblage
The combining of two or more adjoining properties into one tract.
automated valuation model (AVM)
A data analysis compiled from a computer database of closed sales used by lenders when an appraisal is not warranted.
cost
The amount to produce or acquire something.
cost approach
A method for estimating the market value of a property based on the cost to buy the site and to construct a new building on the site, less depreciation.
curable
When the correction of a defect results in as much added value as the cost to correct the defect.
depreciation
A loss in value for any reason; a deduction for tax purposes.
economic life
the period of time a property may be expected to be profitable or productive; useful life.
effective age
The age indicated by a structure’s condition.
effective gross income (EGI)
The resulting amount when vacancy and collection losses are subtracted from potential gross income. See also vacancy and collection losses.
federally related transaction
Any sale transaction that ultimately involves a federal agency in either the primary or secondary mortgage market. Under FIRREA, state-certified or state-licensed appraisers must be used for certain loans in federally related transactions.
gross income multiplier (GIM)
A rule of thumb for estimating the market value of commercial and industrial properties; the ration to convert annual income into market value.
gross rent multiplier (GRM)
A rule of thumb for estimating the market value of income-producing residential property; the ration to convert rental income into market value.
highest and best use
A principle of value that focuses on the most profitable legal use to which a property can be put.
income approach
A method of estimating the market value of a property based on the present and future income the property can be expected to generate.
incurable
When the cost to correct a defect is greater than the value added by the cure.
investment value
The worth of a property to a particular investor based on the investor’s desired rate of return, risk tolerance, etc.
market value
The most probably price a property will bring from a fully informed buyer, willing but not compelled to buy, and the lowest price a fully informed seller will accept if not compelled to sell.
net operating income (NOI)
The resulting amount when all operating expenses are subtracted from effective gross income.
overimprovement
An addition or change to property not in line with its highest and best use, or a betterment that exceeds that justifies by local conditions.
plottage
The added value as a result of combining two or more properties into one large parcel.
potential gross income (PGI)
The total annual income a property would produce with 100% occupancy and no collection or vacancy losses.
price
The amount paid for something.
principle of substitution
An economic law of value: No prudent buyer will pay more for a property than the cost of an equally desirable replacement property.
progression
The principle that states that the value of an inferior property is enhanced by its association with superior properties of the same type.
reconciliation
The process of weighting the estimates of value derived from the sale comparison, cost, and income approaches to arrive at a final estimate of market value.
regression
The principle stating that the value of a superior property is adversely affected by its association with in inferior property of the same type.
