Valuation and Appraisal

Question 1

Transferability

Answer 1

How readily or easily title or rights to real estate can be transferred

Question 2

Anticipation

Answer 2

The benefits a buyer expects to derive from a property over a holding period

Question 3

Substitution

Answer 3

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

Question 4

Contribution

Answer 4

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

Question 5

Highest and Best Use

Answer 5

A theoretical use of property that is legally permissible, physically possible, financially feasible, and maximally productive, usually in the terms of net income generation

Question 6

Conformity

Answer 6

This principle holds that a property’s maximal value us attained when its form and use are in tune with surrounding properties

Question 7

Progression

Answer 7

If a property is surrounded by properties with higher values, its value will tend to rise

Question 8

Regression

Answer 8

If a property is surrounded by properties with lower values, its value will tend to fall

Question 9

Assemblage

Answer 9

A combination of contiguous parcels of real estate into a single tract, performed with the exception that increased value will result

Question 10

Subdivision

Answer 10

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

Question 11

Reproduction Value

Answer 11

The value based on the cost of contructing a precise duplicate of the subject property’s improvements, assuming current construction costs

Question 12

Replacement Value

Answer 12

The value based on the cost of constructing a functional equivalent of the subject property;'s improvements, assuming current construction costs

Question 13

Market Value

Answer 13

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

Question 14

Appraisal

Answer 14

An opinion of value of a property developed by professional and disinterested third party and supported by data and evidence

Question 15

Broker’s Opinion of Value

Answer 15

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

Question 16

Reconciliation

Answer 16

An appraiser’s weighted blending of the results of different approaches to value into a final value estimate

Question 17

Sales Comparison Approach

Answer 17

A method of appraising property that relies on the principle that a property is generally worth what other, similar properties are worth

Question 18

Comparable

Answer 18

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

Question 19

Comparative Market Analysis (CMA)

Answer 19

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

Question 20

Cost Approach

Answer 20

A method for determining value that takes into account the cost of the land and the reproduction cost of the improvements net estimate depreciation

Question 21

Depreciation

Answer 21

1. A non-cash expense taken against the income investment property that allows the owner to recover the cost of the investment through tax savings
2. A loss of value to improve property

Question 22

Income Capitalization Approach

Answer 22

A method of appraising the value of a property by applying a rate of return to the property’s net income

Question 23

Net Operating Income

Answer 23

The amount of pre-tax revenue generated from an income property after accounting for operating expenses and before accounting for any debt service

Question 24

Capitalization Rate

Answer 24

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

Question 25

Gross Rent Multiplier

Answer 25

A shortcut method for estimating the value of an income property. The procedure involves multiplying the property’s gross monthly rent times a multiplier that reflects the ration between gross monthly rent and sale price that is typica for similar properties in the area

Question 26

Gross Income Multiplier

Answer 26

A shortcut method for estimating the value of an income property. The procedure involves multiplying the property’s gross annual income times a multiplier that reflects the ration between gross annual income and sale price that is typical for similar properties in the area

Question 27

Financial Institutions Reform, Recovery, and Enforcement Act

Answer 27

In 1989, Congress passed the (FIRREA) in response to the savings and loan crisis. This act included provisions to regulate appraisal

Question 28

Uniform Standards of Professional Appraisal Practice

Answer 28

The (USPAP) is a set of standards, guidelines and provisions for the appraisal industry. It resulted from the cooperation of nine nations appraisal organizations in 1985