UNIT 16 REAL ESTATE APPRAISAL

Question 1

ACCRUED DEPRECIATION

Answer 1

Loss in a property’s value resulting from physical deterioration, external depreciation, and functional obsolence.

Question 2

ANTICIPATION

Answer 2

The appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.

Question 3

APPRAISAL

Answer 3

An estimate of the quantity, quality, or value of something.

Question 4

APPRAISER INDEPENDENCE REQUIREMENTS (AIR)

Answer 4

Regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals.

Question 5

ASSEMBLAGE

Answer 5

The combining of two or more adjoining lots into one larger tract to increase their total value.

Question 6

BROKER’S PRICE OPINION (BPO)

Answer 6

An opinion of real estate value commissioned by a bank or an attorney and provided by a broker.

Question 7

CAPITALIZATION RATE

Answer 7

The rate of return a property will produce on the owner’s investment.

Question 8

CHANGE

Answer 8

The appraisal principle that holds that no physical or economic condition remains constant.

Question 9

COMPETITION

Answer 9

The appraisal principle stating that excess profits generate competition.

Question 10

CONFORMITY

Answer 10

The appraisal principle holding that the greater the similarity among properties in an area, the better they will hold their value.

Question 11

CONTRIBUTION

Answer 11

The appraisal principle stating that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value.

Question 12

COST APPROACH

Answer 12

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, minus depreciation.

Question 13

DEPRECIATION

Answer 13

(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.

Question 14

ECONOMIC LIFE

Answer 14

The number of years during which an improvement will add value to land.

Question 15

EXTERNAL OBSOLESCENCE

Answer 15

Incurable depreciation caused by factors not on the subject property, such as environmental or economic factors.

Question 16

FUNCTIONAL OBSOLESCENCE

Answer 16

A loss of value to an improvement to real estate arising from problems of design or utility.

Question 17

GROSS INCOME MULTIPLIER (GIM)

Answer 17

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.

Question 18

GROSS RENT MULTIPLIER (GRM)

Answer 18

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.

Question 19

HIGHEST AND BEST USE

Answer 19

The legally permitted and physically possible use of a property that would produce the greatest net income, and thereby, develop the highest value.

Question 20

INCOME APPROACH

Answer 20

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.

Question 21

LAW OF DIMINISHING RETURNS

Answer 21

Point at which additional property improvements do not increase the property’s income or value.

Question 22

LAW OF INCREASING RETURNS

Answer 22

Applies as long as money being spent on property improvements produces an increase in the property’s income or value.

Question 23

MARKET DATA APPROACH

Answer 23

Also known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties.

Question 24

MARKET VALUE

Answer 24

The most probably price that a property would bring in an arm’s length transaction under normal conditions on the open market.

Question 25

NET OPERATING INCOME (NOI)

Answer 25

The income projected for an income producing property after deducting anticipated vacancy and collection losses and operating expenses.

Question 26

PHYSICAL DETERIORATION

Answer 26

A reduction in a property’s value resulting from a decline in physical condition.

Question 27

PLOTTAGE

Answer 27

The increase in value or utility resulting from consolidation (assemblage) of two or more adjacent lots into one larger lot.

Question 28

PROGRESSION

Answer 28

An appraisal principle that the value of a lesser quality property is favorably affected by the presence of a better quality property.

Question 29

RECONCILIATION

Answer 29

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.

Question 30

REGRESSION

Answer 30

An appraisal principle that the value of a better quality is adversely affected by the presence of a less quality property.

Question 31

SALE COMPARISON APPROACH

Answer 31

also known as the Market Data Approach

Question 32

SALES PRICE

Answer 32

the amount of money paid to a seller for the product sold.

Question 33

SUBSTITUTION

Answer 33

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.

Question 34

UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE (USPAP)

Answer 34

A set of standards developed by the Appraisal Foundation that details information require for a property appraisal.

Question 35

VALUE

Answer 35

The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities.