Unit 16 Real Estate Appraisal Flashcards
Define accrued depreciation
Loss in a property’s value resulting from physical deterioration, external depreciation, and functional obsolescence. 304
Define 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. 301
Appraiser Independence Requirements (AIR)
Regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals. 290
Define capitalization rate
The rate of return a property will produce on the owner’s investment. 307
Define change
The appraisal principle that holds that no physical or economic condition remains constant. 301
Define competition
The appraisal principle stating that excess profits generate competition. 301
Define conformity
The appraisal principle holding that the greater the similarity among properties in an area, the better they will hold their value. 301
Define 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. 301
Define 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, less depreciation. 304
Define 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. 305, 431
Define economic life
The number of years during which an improvement will add value to land. 307
Define external obsolescence
Incurable depreciation caused by factors not on the subject property, such as environmental or economic factors. 307
Define functional obsolescence
A loss of value to an improvement to real estate arising from problems of design or utility. 306
Define 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. 309
Define 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. 309
