Vocabulary: Chapter 11- Real Estate Appraisal

Question 1

Accrued depreciation

Answer 1

Loss in value resulting from the property’s physical deterioration, external depreciation (decrease in price), and functional obsolescence

Question 2

Anticipation

Answer 2

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

Question 3

Appraisal

Answer 3

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

Question 4

Assemblage

Answer 4

The combining of tow or more adjoining lots into one larger tract to increase their total value

Question 5

Broker’s Price Opinion (BPO)

Answer 5

An opinion of real estate value commissioned by a bank or attorney and provided by a broker

Question 6

Capitalization Rate

Answer 6

The rate of return a property will produce on the owner’s investment

Question 7

Change

Answer 7

The appraisal principle that holds that no physical or economic condition remains constant

Question 8

Competitive Market Analysis (CMA)

Answer 8

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

Question 9

Competition

Answer 9

The appraisal principle that states that excess profits generate competition

Question 10

Conformity

Answer 10

The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value

Question 11

Contribution

Answer 11

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

Question 12

Cost Approach

Answer 12

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

Question 13

Depreciation

Answer 13

(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

Question 14

Economic Life

Answer 14

The number of years during which an improvement will add value to the land

Question 15

External Obsolescence

Answer 15

Incurable depreciation caused by factors not on the subject property, such as environmental, social, or economic factors

Question 16

Functional Obsolescence

Answer 16

A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design

Question 17

Gross Income Multiplier (GIM)

Answer 17

A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property’s value

Question 18

Gross Rent Multiplier (GRM)

Answer 18

The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property’s value

Question 19

Highest and best use

Answer 19

The possible use of a property that would produce the greatest net income and, thereby, develop the highest value

Question 20

Income Approach

Answer 20

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

Question 21

Law of diminishing returns

Answer 21

The law that applies when at the point where additional improvements do not increase income or value

Question 22

Law of increasing returns

Answer 22

Law that applies as long as money being spent on improvements produces an increase in income or value

Question 23

Market data approach

Answer 23

Also known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties

Question 24

Market value

Answer 24

The most probable price property would bring in an arm’s length transaction under normal conditions on the open market

Question 25

Net operation income (NOI)

Answer 25

The income projected for an income producing property after deducting losses for vacancy and collection and operating expenses

Question 26

Physical deterioration

Answer 26

A reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear

Question 27

Plottage

Answer 27

The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot

Question 28

Progression

Answer 28

An appraisal principle that states that, between dissimilar properties, the value of the lesser quality property is favorably affected by the presence of the better quality property

Question 29

reconciliation

Answer 29

the final step in the appraisal process, in which the appraiser combines the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final estimate of market value for the subject property

Question 30

regression

Answer 30

An appraisal principle that states that, between dissimilar properties, the value of the better quality property is affected adversely by the presence of the lesser quality property

Question 31

Replacement Cost

Answer 31

the construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original

Question 32

Sales comparison approach

Answer 32

The process of estimating the value of a property by examiningtand comparing actual sales of comparable properties

Question 33

Sales price

Answer 33

The amount of money paid to a seller for a product bought

Question 34

Substitution

Answer 34

An appraisal principle that states that the maximum value of a property tends to be set bu the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution

Question 35

Supply and Demand

Answer 35

The appraisal principle that follows the interrelationship of the supply of and demand for real estate. Because appraising ins based on economic concepts, this principle recognizes that real property is subject to the influences of the marketplace as with any other commodity

Question 36

Uniform Standards of Professional Appraisal Practice (USPAP)

Answer 36

A set of standards that details information required of an appraisal of residential property. The Uniform Residential Appraisal Report is require by many government agencies

Question 37

Value

Answer 37

The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amanities