UNIT 16 REAL ESTATE APPRAISAL Flashcards
ACCRUED DEPRECIATION
Loss in a property’s value resulting from physical deterioration, external depreciation, and functional obsolence.
ANTICIPATION
The appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.
APPRAISAL
An estimate of the quantity, quality, or value of something.
APPRAISER INDEPENDENCE REQUIREMENTS (AIR)
Regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals.
ASSEMBLAGE
The combining of two or more adjoining lots into one larger tract to increase their total value.
BROKER’S PRICE OPINION (BPO)
An opinion of real estate value commissioned by a bank or an attorney and provided by a broker.
CAPITALIZATION RATE
The rate of return a property will produce on the owner’s investment.
CHANGE
The appraisal principle that holds that no physical or economic condition remains constant.
COMPETITION
The appraisal principle stating that excess profits generate competition.
CONFORMITY
The appraisal principle holding that the greater the similarity among properties in an area, the better they will hold their value.
CONTRIBUTION
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.
COST APPROACH
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.
DEPRECIATION
(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.
ECONOMIC LIFE
The number of years during which an improvement will add value to land.
EXTERNAL OBSOLESCENCE
Incurable depreciation caused by factors not on the subject property, such as environmental or economic factors.
FUNCTIONAL OBSOLESCENCE
A loss of value to an improvement to real estate arising from problems of design or utility.
GROSS INCOME MULTIPLIER (GIM)
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.
GROSS RENT MULTIPLIER (GRM)
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.
HIGHEST AND BEST USE
The legally permitted and physically possible use of a property that would produce the greatest net income, and thereby, develop the highest value.
INCOME APPROACH
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.
LAW OF DIMINISHING RETURNS
Point at which additional property improvements do not increase the property’s income or value.
LAW OF INCREASING RETURNS
Applies as long as money being spent on property improvements produces an increase in the property’s income or value.
MARKET DATA APPROACH
Also known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties.
MARKET VALUE
The most probably price that a property would bring in an arm’s length transaction under normal conditions on the open market.
NET OPERATING INCOME (NOI)
The income projected for an income producing property after deducting anticipated vacancy and collection losses and operating expenses.
PHYSICAL DETERIORATION
A reduction in a property’s value resulting from a decline in physical condition.
PLOTTAGE
The increase in value or utility resulting from consolidation (assemblage) of two or more adjacent lots into one larger lot.
PROGRESSION
An appraisal principle that the value of a lesser quality property is favorably affected by the presence of a better quality property.
RECONCILIATION
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.
REGRESSION
An appraisal principle that the value of a better quality is adversely affected by the presence of a less quality property.
SALE COMPARISON APPROACH
also known as the Market Data Approach
SALES PRICE
the amount of money paid to a seller for the product sold.
SUBSTITUTION
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.
UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE (USPAP)
A set of standards developed by the Appraisal Foundation that details information require for a property appraisal.
VALUE
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.
