18. Real Estate Appraisal

Question 1

ANTICIPATION

Answer 1

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 2

APPRAISAL

Answer 2

An estimate of the quantity, quality, or 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 3

APPRAISER

Answer 3

An independent person trained to provide an unbiased estimate of value.

Question 4

ASSEMBLAGE

Answer 4

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

Question 5

CAPITALIZATION RATE

Answer 5

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

Question 6

CHANGE

Answer 6

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

Question 7

COMPETITION

Answer 7

The appraisal principle that states that excess profits generate competition.

Question 8

CONFORMITY

Answer 8

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

Question 9

CONTRIBUTION

Answer 9

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 10

COST APPROACH

Answer 10

The process of estimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation.

Question 11

DEPRECIATION

Answer 11

(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 12

DIMINISHING RETURNS

Answer 12

The concept that no matter how much money is spent on a property, the property’s value does not keep pace with the expenditures.

Question 13

ECONOMIC LIFE

Answer 13

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

Question 14

EXTERNAL OBSOLESCENCE

Answer 14

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

Question 15

FUNCTIONAL OBSOLESCENCE

Answer 15

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

Question 16

GROSS INCOME MULTIPLIER (GIM)

Answer 16

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

Question 17

GROSS RENT MULTIPLIER (GRM)

Answer 17

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

Question 18

HIGHEST AND BEST USE

Answer 18

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

Question 19

INCOME APPROACH

Answer 19

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 20

INCREASING RETURNS

Answer 20

When money spent on improvements produces an increase in income or value.

Question 21

INDEX METHOD

Answer 21

The appraisal method of estimating building costs by multiplying the original cost of the property by a percentage factor to adjust for current construction costs.

Question 22

MARKET DATA APPROACH

Answer 22

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

Question 23

MARKET VALUE

Answer 23

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

Question 24

PHYSICAL DETERIORATION

Answer 24

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 25

PLOTTAGE

Answer 25

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

Question 26

PROGRESSION

Answer 26

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 27

QUANTITY-SURVEY METHOD

Answer 27

The appraisal method of estimating building costs by calculating the cost of all of the physical components in the improvements, adding the cost to assemble them, and then including the indirect costs associated with such construction.

Question 28

RECONCILIATION

Answer 28

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 29

REGRESSION

Answer 29

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 30

REPLACEMENT COST

Answer 30

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 31

REPRODUCTION COST

Answer 31

The construction cost at current prices of an exact duplicate of the subject property.

Question 32

SALES COMPARISON APPROACH

Answer 32

The process of estimating the value of a property by examining and comparing actual sales of comparable properties.

Question 33

SQUARE-FOOT METHOD

Answer 33

The appraisal method of estimating building costs by multiplying the number of square feet in the improvements being appraised by the cost per square foot for recently constructed similar improvements.

Question 34

STRAIGHT-LINE METHOD

Answer 34

A method of calculating depreciation for tax purposes, computed by dividing the adjusted basis of a property by the estimated number of years of remaining useful life.

Question 35

SUBSTITUTION

Answer 35

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

Question 36

SUPPLY AND DEMAND

Answer 36

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

Question 37

UNIT-IN-PLACE METHOD

Answer 37

The appraisal method of estimating building costs by calculating the costs of all of the physical components in the structure, with the cost of each item including its proper installation, connection, etc.; also called the segregated cost method.

Question 38

VALUE

Answer 38

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