VALUATION AND MARKET ANALYSIS Flashcards
Looks to the future for value
ANTICIPATION
A document that gives an estimate of fair market value; for lenders, owners, etc.
APPRAISAL
Refers to an agreement arrived at under no undue pressure
ARMS-LENGTH AGREEMENT
The total value of combined properties exceeds total value of individual properties; also referred to as a plottage increment
ASSEMBLAGE
An approach to value best used on income producing properties such as shopping centers, apartment complexes, etc. This approach uses the net operating income and a capitalization rate to estimate the value. Also referred to as the income approach.
CAPITALIZATION APPROACH
Actual Age
CHRONOLOGICAL AGE
High profits attract competition
COMPETITION
(CMA) What an agent uses in trying to find a value for a piece of property; a residential agent analyzes sold properties, currently for sale properties, and expired listing properties in an effort to determine a range of value for a particular piece of property
COMPETITIVE MARKET ANALYSIS
Properties should conform to the neighborhood to maintain the greatest value
CONFORMITY
Value of improvement is equal to what it adds to total value
CONTRIBUTION
An approach to value best used on special purpose properties, such as churches and hospitals; the approach values a property by determining the current replacement cost, less depreciation, plus the current land value
COST APPROACH
A way to determine current replacement cost by taking the cubic footage (length times width times height) of a property times a cost per cubic foot
CUBIC FOOT METHOD
Money spent on improvement does not add at least that much or more to the total value
DECREASING RETURNS
An element of value; must be wanted
DEMAND
Number of years item is profitable; economic life is shorter than the physical life
ECONOMIC LIFE
A form of depreciation due to problems outside the property lines; e.g., owning a house next to a factory or sewage treatment plant; also referred to as external obsolescence
ECONOMIC OBSOLESCENCE
Apparent age based on condition; generally less than chronological age
EFFECTIVE AGE
The annual gross income for a property less a vacancy rate; used with the income approach
EFFECTIVE GROSS INCOME
A form of depreciation due to problems outside the property lines; e.g., owning a house next to a factory or sewage treatment plant; also referred to as economic obsolescence
EXTERNAL OBSOLESCENCE
A form of depreciation due to problems inside the property lines; does not function the way modern properties do; e.g., outhouses, pumps for water, etc.
FUNCTIONAL OBSOLESCENCE
The possible annual gross income for a property; used with the income approach
GROSS INCOME
(GRM); This is a form of the income approach used to estimate the value of a rental property. The gross rent multiplier is computed by taking a rental properties sale price and dividing by the rent charged.
GROSS RENT MULTIPLIER
The use of a property that provides greatest net return on land
HIGHEST AND BEST USE
An approach to value best used on income producing properties such as shopping centers, apartment complexes, etc. This approach uses the net operating income and a capitalization rate to estimate the value. Also referred to as the capitalization approach.
INCOME APPROACH
Money spent on improvement adds at least that much or more to the total value
INCREASING RETURNS
An approach to value best used on residential property and vacant land; uses comparable properties to estimate values
MARKET DATA APPROACH
NOI; the annual gross income for a property less a vacancy rate and operating expenses; used with the income approach
NET OPERATING INCOME
Used with the income approach, the operating expenses include all operating costs, such as utilities, maintenance, salaries, etc. The one expenses NOT considered is the debt service (mortgage payments).
OPERATING EXPENSES
A form of depreciation due to peeling paint, sagging floors, etc.
PHYSICAL DETERIORATION
Number of years item is physically sound
PHYSICAL LIFE
The total value of combined properties exceeds total value of individual properties; also referred to as assemblage
PLOTTAGE INCREMENT
A way to determine current replacement cost by pricing the rebuilding item by item; every brick, board, etc.
QUANTITY SURVEY METHOD
Allows owners of investment property to deduct a percentage of the cost of the property each year from their taxable income; also referred to as tax depreciation
RECAPTURE
(Correlation) The final step in the appraisal process; this reconciles differences from among three different approaches to value to arrive at a final dollar amount for the appraisal
RECONCILIATION
Using the cost of similar materials
REPLACEMENT COST
Using the exact replica cost
REPRODUCTION COST
An element of value; must be a limited supply
SCARCITY
A way to determine current replacement cost by taking the square footage (length times width) of a property times a cost per square foot; appraisers use outside dimensions in determining square footage
SQUARE FOOT METHOD
The first step in the appraisal process; this defines the purpose of the appraisal
STATE THE PROBLEM
A method of depreciation where one depreciates equal amounts each year; what appraisers use
STRAIGHT LINE METHOD DEPRECIATION
A property is only worth what one can get another one for just like it
SUBSTITUTION
Allows owners of investment property to deduct a percentage of the cost of the property each year from their taxable income; also referred to as recapture
TAX DEPRECIATION
An element of value; seller must be able to give to buyer
TRANSFERABILITY
A way to determine current replacement cost by pricing the rebuilding by units; concrete, roof, etc.
UNIT-IN-PLACE METHOD
An element of value; must be useful
UTILITY
An item goes down in value due to age, wear and tear, etc.
VALUE DEPRECIATION
