Vocabulary: Chapter 11- Real Estate Appraisal Flashcards
Accrued depreciation
Loss in value resulting from the property’s physical deterioration, external depreciation (decrease in price), and functional obsolescence
Anticipation
The appraisal principle that holds 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, r value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value
Assemblage
The combining of tow 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 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
Competitive Market Analysis (CMA)
A comparison of the prices of recently sold homes that are similar to a listing seller’s home in terms of location, style, and amenities
Competition
The appraisal principle that states that excess profits generate competition
Conformity
The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value
Contribution
The appraisal principle that states 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 estimation the value of a property by adding to the estimated land value the appraiser’s estimate of the reproduction or relacement cost of the building, less 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, an expense deduction for tax purposes taken over the period of ownership of income property
Economic Life
The number of years during which an improvement will add value to the land
External Obsolescence
Incurable depreciation caused by factors not on the subject property, such as environmental, social, or economic factors
Functional Obsolescence
A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design
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
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
Highest and best use
The 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
The law that applies when at the point where additional improvements do not increase income or value
Law of increasing returns
Law that applies as long as money being spent on improvements produces an increase in 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 probable price property would bring in an arm’s length transaction under normal conditions on the open market
