Valuation and Appraisal Flashcards
Transferability
How readily or easily title or rights to real estate can be transferred
Anticipation
The benefits a buyer expects to derive from a property over a holding period
Substitution
An appraisal principle that holds that a buyer will pay no more for a property than the buyer would pay for an equally desirable and available substitute property. Forms the foundation for the sales comparison approach to value
Contribution
The increment of market value added to a property through the addition of a component or improvement to the property. Not to be confused with the cost of the component
Highest and Best Use
A theoretical use of property that is legally permissible, physically possible, financially feasible, and maximally productive, usually in the terms of net income generation
Conformity
This principle holds that a property’s maximal value us attained when its form and use are in tune with surrounding properties
Progression
If a property is surrounded by properties with higher values, its value will tend to rise
Regression
If a property is surrounded by properties with lower values, its value will tend to fall
Assemblage
A combination of contiguous parcels of real estate into a single tract, performed with the exception that increased value will result
Subdivision
The division of a single property into smaller properties can also result in a higher total value. For instance, a one-acre suburban site appraised at $50,000 may be subdivided into four quarter-acre lots worth $30,000 each. This principle contributes significantly to the financial feasibility of subdivision development
Reproduction Value
The value based on the cost of contructing a precise duplicate of the subject property’s improvements, assuming current construction costs
Replacement Value
The value based on the cost of constructing a functional equivalent of the subject property;'s improvements, assuming current construction costs
Market Value
An opinion of the price at which a willing seller and buyer would trade a property at a given time, assuming a cash sale, reasonable exposure to the market, informed parties, marketable title, and no abnormal pressure to transact
Appraisal
An opinion of value of a property developed by professional and disinterested third party and supported by data and evidence
Broker’s Opinion of Value
An estimate of a property’s value rendered by a party who is not necessarily licensed, objective, or qualified. The estimate may not be a complete appraisal
Reconciliation
An appraiser’s weighted blending of the results of different approaches to value into a final value estimate
Sales Comparison Approach
A method of appraising property that relies on the principle that a property is generally worth what other, similar properties are worth
Comparable
A property having similar characteristics to a subject property in an appraisal. The value or sale price of the comparable is used to estimate the value of the subject
Comparative Market Analysis (CMA)
A method used by brokers and salespeople for estimating the current value of a property using sale price data from similar properties. Not to be confused with bona fide appraisal performed by a licensed appraiser
Cost Approach
A method for determining value that takes into account the cost of the land and the reproduction cost of the improvements net estimate depreciation
Depreciation
- A non-cash expense taken against the income investment property that allows the owner to recover the cost of the investment through tax savings
- A loss of value to improve property
Income Capitalization Approach
A method of appraising the value of a property by applying a rate of return to the property’s net income
Net Operating Income
The amount of pre-tax revenue generated from an income property after accounting for operating expenses and before accounting for any debt service
Capitalization Rate
The rate of return on capital an investor will demand from the investment property, or the rate of return that the property will actually produce
