Ch. 16

Question 1

Accrued Depreciation

Answer 1

Loss in a property’s value resulting from physical deterioration, external depreciation, and functional obsolescence.

Question 2

Anticipation

Answer 2

The appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.

Question 3

Appraiser Independence Requirements (AIR)

Answer 3

Regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals.

Question 4

Assemblage

Answer 4

The combining of two 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 an attorney and provided by 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

Competition

Answer 8

The appraisal principle stating that excess profits generate competition.

Question 9

Conformity

Answer 9

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

Question 10

Contribution

Answer 10

The appraisal principle stating 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 11

Cost Approach

Answer 11

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 12

Depreciation

Answer 12

(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, a deduction for tax purposes taken over the period of ownership of income property, based on the property’s acquisition cost.

Question 13

Economic Life

Answer 13

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

Question 14

External Obsolescence

Answer 14

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

Question 15

Functional Obsolescence

Answer 15

A loss of value to an improvement to real estate arising from problems of design or utility.

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; usually used for commercial property.

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; usually used for single-family residential property.

Question 18

Highest and Best Use

Answer 18

The legally permitted and physically 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

Law of Diminishing Returns

Answer 20

Point at which additional property improvements do not increase the property’s income or value.

Question 21

Law of Increasing Returns

Answer 21

Applies as long as money being spent on property improvements produces an increase in the property’s income or value.

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 that a property would bring in an arm’s-length transaction under normal conditions on the open market.

Question 24

Net Operating Income (NOI)

Answer 24

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

Question 25

Physical Deterioration

Answer 25

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 26

Plottage

Answer 26

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

Question 27

Progression

Answer 27

An appraisal principle that the value of a lesser-quality property is favorably affected by the presence of a better-quality property.

Question 28

Reconciliation

Answer 28

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

Question 29

Regression

Answer 29

An appraisal principle that the value of a better-quality property is affected adversely by the presence of a lesser-quality property.

Question 30

Sales Comparison Approach

Answer 30

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

Question 31

Sales Price

Answer 31

The amount of money paid to a seller for the product sold.

Question 32

Substitution

Answer 32

An appraisal principle that the maximum value of 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 33

Uniform Standards of Professional Appraisal Practice (USPAP)

Answer 33

A set of standards developed by the Appraisal Foundation that details information required for a property appraisal.

Question 34

Value

Answer 34

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 .