Chapter 22 Flashcards
American Society of Appraisers (ASA)
A professional organization of appraisers.
Appraisal Institute
A professional organization of appraisers.
Capitalization
The act of converting future income into current equivalent value.
Capitalization Rate
The relationship or ratio between the net income from a real estate investment and the value of the investment, usually expressed as a percentage; the rate of interest which is considered a reasonable return on the investment, plus the recapture rate which computes a return of the investment.
Appraisal by Cost Approach
Estimating the value of a piece of property by adding to the estimated land value the estimate of the replacement cost or reproduction cost of the building less depreciation. Also called summation or reproduction cost approach.
Depreciation
Loss of value brought about by physical deterioration or functional or economic obsolescence.
Deterioration
Loss in value brought about by wear and tear.
Economic Life
The period of time over which a property may be profitably used.
External/Economic Obsolescence
Loss in value due to factors outside of the property (such as near airport)
FIRREA
Financial Institutions Reform, Recovery and Endorsement Act. An act requiring appraisers be certified or licensed.
Functional Obsolescence
Functional obsolescence or lack of desirability in terms of layout, style and design as co pared with that of a new property serving the same function.
Highest and Best Use
That use of land, which at the time of an appraisal is most likely to produce the greatest bet return over a given period of time.
Appraisal by Capitalization
Determine the value of property by dividing net annual income by the capitalization rate. Used on income producing properties. (Commercial)
Income divided by rate = value
Appraisal by Market Comparison
An appraisal of property through the examination and comparison of actual sales of comparable properties. Also called a “comparable”.
Market Value
The highest price a ready, willing and able buyer, not forced to buy, will pay to a ready, willing and able seller, not forced to sell, allowing a reasonable time for exposure in the open market.
