Module 11 Vocab

Question 1

One of the economic principles. ____ is the perception that value is created by the expectation of benefits to be derived in the future. Present value is affected by expected future benefits or detriments.

Answer 1

Anticipation

Note: It is always focused on the future, never on the past or present.

Question 2

One of the economic principles. The principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.

This principle’s focuses on land and improvements. When the combination of land and improvements are optimal, economic ____ is achieved based on the assumption that no marginal benefit or utility is gained by adding another unit of capital.

Answer 2

balance

Subprinciples of balance:

• increasing and decreasing returns
• contribution
• surplus productivity
• conformity

Question 3

One of the economic principles. ____ is the result of the cause and effect relationship among the forces that influence real property value.

Answer 3

change

Real estate markets are dynamic and subject to constant and immediate change. It is inevitable and continuous but can be gradual and not readily perceived or observed by the appraiser. It is not always predictable.

Question 4

One of the economic principles. ____ is the interaction of supply and demand. Moderate profits attract healthy ____. Excess profits can lead to ruinous ___.

Answer 4

competition

Notes:
1. Between purchasers or tenants, the interactive efforts of two or more potential purchasers or tenants to secure a sale or lease.

2. Between sellers or landlords, the interactive efforts of two or more potential sellers or landlords to secure a sale or lease.
3. Among competitive properties, the level of productivity and amenities or benefits characteristic of each property considering the advantageous or disadvantageous position of the property relative to the competitors.

Question 5

A subprinciple of the economic principle of balance. The appraisal principle that real estate value is created and sustained when the characteristics of a property _____ to the demands of its market.

Answer 5

conformity

Notes:
Subprincples:
- principle of progression
- principle of regression

Question 6

The concept that land cannot be valued on the basis of one use while the improvements are valued on the basis of another use.

Answer 6

consistent use

Question 7

A subprinciple of the economic principle of balance. The concept that the value of a particular component is measured in terms of the amount it adds to the value of the whole property or as the amount that its absence would detract from the value of the whole

Answer 7

contribution

Question 8

Land that is not needed to serve or support the existing use. The highest and best use of it may or may not be the same as the highest and best use of the improved parcel. ______ has the potential to be sold separately and is valued separately.

Answer 8

excess land

Question 9

One of the economic principles that states economies outside a property have a positive effect on its value while diseconomies outside a property have a negative
effect on its value.

Answer 9

externalities

Question 10

The reasonably probable use of a property that results

in the highest value.

Answer 10

highest and best use

Note: The four criteria that the highest and best use must meet are:

• legal permissibility
• physical possibility
• financial feasibility
• maximum productivity

Question 11

The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements.

Answer 11

highest and best use as though vacant

Question 12

The use that should be made of a property as it exists. An existing improvement should be renovated or retained as is so long as it continues to contribute to the total market value of the property.

Answer 12

highest and best use property as improved

Question 13

The temporary use to which a site or improved property is put until a different use becomes maximally productive.

Answer 13

interim use

Question 14

A subprinciple of the economic principle of balance. The concept that successive increments of one or more agents of production added to fixed amounts of the other agents will enhance income or value (in dollars, benefits, or amenities) at an increasing rate until a maximum return is reached. Beyond a certain point, each additional unit will add less income or value than the unit before it.

Answer 14

increasing and decreasing returns (aka the law of increasing returns or law of decreasing returns)

Question 15

The balance point where supply and demand meet. The theoretical balance where demand and supply for a property, good, or service are equal.

Answer 15

market equilibrium

Note: Over the long run, most markets move towards equilibrium but a balance is seldom achieved for any period of time.

Question 16

the cost of options forgone or not chosen

Answer 16

opportunity cost

Question 17

a sub principle of conformity that states a lower-priced property will be worth more in a higher-priced neighborhood than it would in a neighborhood of comparable properties

Answer 17

progression

Question 18

a sub principle of conformity that states a higher-priced property will be worth less in a lower-priced neighborhood than it would in a neighborhood of comparable properties

Answer 18

regression

Question 19

One of the economic principles. The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution.

Assumes rational, prudent market behavior with no undue cost due to delay. The premise is that a buyer will not pay more for a property than for another that is equally desirable.

Answer 19

substitution

Question 20

The economic principle as applied within real estate appraisal context states that the price of real property varies directly, but not necessarily proportionately with demand and inversely but not necessarily proportionately with supply.

Answer 20

supply and demand

Note:

• the interaction of buyers and sellers affects value directly
• the interaction of landlords and tenants affects value indirectly because there is no transfer in title; however, negotiated rents still have a value impact on the investment property.
• Supply works in conjunction with scarcity (one of the 4 factors of value)
• Demand: the ability and desire to purchase (or lease) goods and services

Question 21

Land that is not currently needed to support the existing use but cannot be separated from the property and sold off for another use. ____ does not have an independent highest and best use and may or may not
contribute value to the improved parcel.

Answer 21

surplus land

All excess land could be surplus land, but surplus land is never excess land. The market is the deciding factor on whether excess land could turn out to be surplus land. However, a reverse application where surplus land
could become excess land is not possible, because surplus land cannot be sold off separately.

Question 22

The net income that remains after the costs of

various agents of production have been paid.

Answer 22

surplus productivity

Question 23

the ability of an individual or group to participate in a market (i.e. to acquire goods and services with cash or its equivalent)

Answer 23

Effective purchasing power

Question 24

The desire to buy coupled with the ability to pay.

When the term demand is used in economics or real estate analysis, _______ is usually presumed.

Answer 24

Effective demand

Question 25

The four criteria that the highest and best use must meet are:

Answer 25

• legal permissibility
• physical possibility
• financial feasibility
• maximum productivity

Question 26

the compatibility between a property and its surroundings

Answer 26

external conformity

Question 27

the condition that exists when labor, capital, coordination, and land are appropriately combined in a property.

Answer 27

internal conformity