Chapter 11 - Valuation & Appraisal Vocabulary Flashcards
Chap 11 Vocab (143 cards)
1
Q
Accrued
A
An accumulation over a period of time.
2
Q
accrued depreciation
A
The difference between the cost to replace the property and the property’s current appraised value.
3
Q
actual age
A
(1) The chronological age of a building. (2) Real age of a building.
4
Q
Amenity
A
A tangible or intangible feature that enhances or adds value to real estate.
5
Q
Amenity Purchaser
A
A person who values a property based on its ability to fulfill his specific business needs or use, unlike investors who value a property based primarily on its investment return.
6
Q
Anticipation
A
An economic principle that says value is created by the expectation of future benefits, such as profit on resale, pleasure, tax shelter, production, income, etc. Anticipation is the foundation of the income approach.
7
Q
Appraisal
A
A professional estimate or opinion of the value of a piece of property (parcel of land), as of a certain date, that’s supported by objective data.
8
Q
Appraisal Foundation
A
Nonprofit organization recognized as the authority for professional appraisal standards. Appraisal Management Company (AMC) An entity that, for compensation, acts as a third party intermediary by contracting with independent real estate appraisers to perform appraisals for lenders.
9
Q
appraisal process
A
An orderly systematic method to arrive at an estimate of value.
10
Q
appraisal report
A
A written statement where an appraiser gives his or her opinion of value.
11
Q
Appraiser
A
A person who estimates the value of property, especially an expert qualified to do so by education and experience.
12
Q
Arm’s Length Transaction
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A transaction that occurred under typical conditions in the marketplace, with each party acting in his or her own best interest. and are under no undue influence or pressure from other parties.
13
Q
Assemblage
A
The act of combining two or more parcels of land into one larger parcel.
14
Q
Assessed Value
A
The value placed on a property by a taxing authority for the purpose of taxation. With real estate, this value is usually a fraction of true value.
15
Q
assessment
A
The valuation of property for the purpose of levying a tax or the amount of the tax levied.
16
Q
Assessor
A
The official who has the responsibility of determining assessed values.
17
Q
blighted area
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A section of a city, generally the inner city, where a majority of the buildings are run-down, and the property values are extremely low.
18
Q
book value
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The current value (for accounting purposes) of a property, calculated as the original cost, plus capital improvements, minus accumulated or accrued depreciation.
19
Q
Buyer’s Market
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A situation in the housing market when there are many homes available for sale, but few buyers.
20
Q
change, principle of
A
Holds that it is the future, not the past, which is of prime importance in estimating value. Change is largely the result of cause and effect.
21
Q
Comparables
A
Recently sold properties with similar characteristics (size, room count, design, utility, etc.) that are in close proximity to the property being appraised. Also called Comps. – (1) Sales which have similar characteristics as the subject property and are used for analysis in the appraisal process. (2) Commonly called comps, they are recent selling prices of properties similarly situated in a similar market.
22
Q
Comparative Market Analysis (CMA)
A
A method of determining the approximate market value of a home by comparing the subject property to similar homes that have sold, are presently for sale, or did not sell in a given area. Also called Competitive Market Analysis. – A comparison analysis that real estate brokers use while working with a seller to determine an appropriate listing price for the seller’s house.
23
Q
comparison approach
A
(1) A real estate comparison method which compares a given property with similar or comparable surrounding properties. (2) Also called market comparison.
24
Q
competition, principle of
A
Holds that profits tend to breed competition and excess profits tend to breed ruinous completion.
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Comps
A term used by real estate agents and appraisers to mean comparable properties.
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Conformity
The principle that says a particular property achieves its maximum value when surrounded by properties similar in style, function, and utility. Also called Homogeneity. -- When land uses are compatible and homes are similar in design and size, the maximum value is realized.
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Contract Rent
What tenants are actually paying in rent, as stated in the terms of the lease.
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Contribution
The principle that a specific item or feature of a property is worth only what it actually contributes in value to that parcel of real estate. -- The worth of an improvement and what it adds to the entire property’s market value, regardless of the actual cost of the improvement. Holds that maximum values are achieved when the improvements on a site produce the highest (net) return, commensurate with the investment.
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corner influence
Commercial properties benefit from more exposure on a corner lot.
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corner lot
A lot found at the intersection of two streets. It may be desirable because of its accessibility, but may also be noisy and expensive to maintain because of the increased frontage.
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Correlation
(1) A step in the appraisal process involving the interpretation of data derived from the three approaches in value (cost, market and income) leading to a single determination of value. (2) Also frequently referred to as reconciliation.
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Cost
The amount needed to develop, produce, or build something. -- The expenses in money, labor, material or sacrifices in acquiring or producing something.
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Cost Approach
An appraisal method that estimates the value of real estate by establishing the cost new of replacing or reproducing the improvements, minus depreciation, plus the value of the site. -- An appraisal method whereby a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting the estimated accrued depreciation, then adding the market value of the land.
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Cubic Feet
Length x Width x Depth. Cubic Feet. Divide cubic feet by 27 to find cubic yards. -- foot method - Similar to the square - foot method, except that it takes height as well as area into consideration. The cubic contents of buildings are compared instead of just the square footage.
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cul-de-sac lot
A lot found on a dead-end street with the same way for ingress and egress.
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Curable Depreciation
Depreciation is considered curable if the cost of the repair is less than what the repair adds to the value of property. -- Items of physical deterioration and functional obsolescence which are customarily repaired or replaced by a prudent property owner.
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Days on Market (DOM)
The time period between listing a property and either selling or removing it from the market.
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deferred maintenance
Negligent, postponed, care of a building.
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demand
The desire to buy or obtain a commodity.
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Depreciation
1. The decrease in value to real property improvements caused by deterioration or obsolescence. 2. A loss in value as an accounting procedure for use as a tax deduction for income tax purposes. Also called Cost Recovery. -- (1) Loss in value from any cause. (2) A tax advantage of ownership of income property.
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depth table
A statistical table that may be used to estimate the value of the added depth of a lot.
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DUST
The mnemonic for Demand, Utility, Scarcity, and Transferability.
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economic age
Age of a building determined by its condition and usefulness.
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Economic Base
The main business or industry in an area that supports and sustains the community.
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Economic Life
The time during which a building can be used for its intended purpose and generate more income than is paid out for operating expenses. Also called Useful Life. -- (1) The estimated period over which a building may be profitably used. (2) Also known as effective life.
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Economic Obsolescence
A loss in value due to factors outside the subject property, such as changes in competition or surrounding land use. Also called External Obsolescence. -- (1) A type of depreciation occurring because of forces outside the property. (2) Changes in the social or economic make-up of the neighborhood, zoning changes, over-supply of homes, under-supply of buyers, recession or legislative restrictions can cause economic obsolescence.
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Economic Rent
The amount of rental which a building would receive, if set by the market, as opposed to contract rent set by the lease. -- What a leased property would be expected to rent for under current market conditions if the property were vacant and available for rent.
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Effective Age
The age of a structure based on the actual wear and tear that the building shows from physical, functional or external obsolescence; not necessarily the structure's actual age.
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Effective Date
The date for which value was established when doing an appraisal.
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effective demand
The desire coupled with purchasing power.
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Effective Gross Income
The anticipated income resulting from the estimated potential gross income from a rental property less an allowance for vacancy and collection losses. -- The amount of net income that remains after the deduction from gross income of vacancy and credit losses.
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effective life
The estimated period over which a building may be profitably used.
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external obsolescence
When something outside of a property and outside of the control of a property owner makes it less desirable. Also called Economic Obsolescence. -- Any influence negatively affecting a property’s value that falls outside of the specific property site (i.e., a property located under an airport flight pattern).
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flag lot
A lot that looks like a flag on a pole. The pole represents the access to the site, which is usually located to the rear of another lot fronting a main street.
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front foot
The width of a property on the side facing the street.
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Frontage
The length of a property along a street. -- The dimension across the access side of a parcel of land. The access could be a road, railroad tracks, or water. When referring to lot size, frontage is the first number. Also called Front Foot.
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Functional Obsolescence
When an improvement is less desirable because of something inherent or lacking in the design. -- A type of depreciation stemming from poor architectural design, lack of modern facilities, out-of-date equipment, changes in styles of construction, or changes in utility demand.
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functional utility
The combined factors of usefulness with desirability.
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Gross Income
The actual income received from property before the deduction for any expenses.
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Gross Income Multiplier
A conversion factor derived from the sales price of a comparable rental property divided by its gross rent and any other miscellaneous income. This factor is multiplied by the estimated gross rent of the subject to estimate its value. -- A figure which, when multiplied by the annual gross income, will theoretically determine the market value. A general rule of thumb which varies with specific properties and areas (industrial and commercial).
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gross rent
Income (calculated annually or monthly) received from rental units before any expenses are deducted.
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Gross Rent Multiplier (GRM)
A conversion factor derived from the sales price of a comparable rental property divided by its gross monthly rent. This factor is multiplied by the estimated gross rent of the subject to estimate its value. Also called Gross Monthly Rent Multiplier (GMRM). -- A method used by real estate agents and appraisers to quickly convert gross-rent into market value. It is used for income producing properties and is an easy way to get a rough estimate of the value of rental units.
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ground rent
(1) Earnings of improved property credited to earnings of the ground itself after allowance is made for earnings of improvements. (2) Also called economic rent.
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highest and best use
An appraisal phrase meaning that use which at the time of an appraisal is The most profitable, legally permitted, feasible, and physically possible use of a piece of property. Most likely to produce the greatest net return to the land and/or buildings over a given period of time; that use which will produce the greatest amount of amenities or profit. This is the starting point for appraisal.
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Hoskold Tables
A method used to value an annuity that is based on reinvesting capital immediately; used by appraisers to valuate income property.
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Improvements
Additions to real property; can be natural (e.g., trees or a lot feature), but usually are man-made; substantial fixtures, such as buildings. -- to enhance value or extend useful remaining life.
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Income Approach
An appraisal method that estimates the value of real estate by analyzing the amount of revenue, or income, the property currently generates, or could generate. Also called Capitalization Approach. -- Estimates the present worth of future benefits
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interim use
(1) When the highest and best use is expected to change. (2) A short-term and temporary use of a property until it is ready for a more productive highest and best use.
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interior lot
A lot that is surrounded by other lots, with a frontage on the street. It is the most common type lot and may be desirable or not, depending on other factors.
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Inwood tables
Means by which an income stream can be converted into present value; used by appraisers to valuate income property.
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key lot
A lot that resembles a key fitting into a lock, is surrounded by the back yards of other lots. It is the least desirable because of the lack of privacy.
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Landlocked
A parcel that is completely shut in by adjoining parcels of land with no access to public roads. -- Property surrounded by other property with no access to a public road, street or alley.
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Market
A place where buyers and sellers come together to buy and sell services or products. Markets can be divided into sub-markets.
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market comparison approach
(1) An appraisal method using the principles of substitution to compare similar properties. (2) A means of comparing similar type properties, which have recently sold, to the subject property. (3) Also called market data approach.
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Market Data Approach
A means of estimating value by comparing similar properties. Used when there is an active market and where comparables can be identified. Also called Comparable Sales Approach or Sales Comparison Approach.
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Market Position
The position an agent’s listing is in compared to similar homes in the same neighborhood at a similar price.
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market price
The price paid regardless of pressures, motives or intelligence.
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Market Rent
What the property could rent for in the open market if unencumbered by any lease and available. -- The rent a property should bring in the open market.
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Market Value
The theoretical price that a piece of property would bring if placed on the open market for a reasonable period of time, with a buyer willing (but not forced) to buy, and a seller willing (but not forced) to sell, if both buyer and seller were fully informed as to possible use of the land. -- (1) The highest price a property would bring if freely offered on the open market, with both a willing buyer and a willing seller. (2) Sometimes called objective value.
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Matched Pair Analysis
Process of determining the value of specific property characteristics or features by comparing pairs of similar properties.
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misplaced improvements
Improvements on land which do not conform to the most profitable use of the site.
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Monopoly
A situation where only one or very few companies dominate the market share of a particular product or service.
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narrative appraisal
A summary of all factual materials, techniques, and appraisal methods used by the appraiser in setting forth his or her value conclusion.
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Neighborhood
A contiguous area labeled by similar traits or physical boundaries. Also called Market Area.
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net operating income (NOI)
The balance remaining after deducting gross receipts of all fixed expenses.
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Obsolescence
A loss in value due to reduced desirability and usefulness of a structure because its design and construction have become obsolete. A loss due to a structure’s becoming old fashion, not in keeping with today’s standards or needs, with consequential loss of income. May be functional or economic.
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Open Market Operations
When the Federal Reserve Board sells or buys government securities (or U.S. dollars) as a means of controlling supply and demand and confidence in those items.
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Origination
The process of making or initiating a new loan. The placement of a building on its lot in relation to exposure to sun, prevailing wind, traffic, and privacy from the street.
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PEPS
The mnemonic for the four forces influencing value: Physical characteristics, Economic Influences, Political (governmental) regulations, and Social ideals.
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Physical Deterioration
The loss in value due to wear and tear of the structure. (1) A type of depreciation caused by wear and tear, negligent care, damage by dry rot or termites or severe changes in temperature. (2) Also known as deferred maintenance.
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Plottage
An increase in value, over the cost of acquiring the separate parcels, by successful assemblage, usually due to a change in use. -- Putting several smaller, less valuable parcels together under one ownership to increase value of total property.
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Price
The amount asked, offered, or paid for a property. What the property actually sold for.
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Price-Fixing
An antitrust violation that occurs when two or more competitors agree to fix the prices that they will charge. In real estate it might occur when brokers agree with other brokers on commission rates; even the implication that brokers have discussed and/or reached agreement on fees could be illegal.
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Principle of Decreasing Returns
Theory that says that beyond a certain point, the added value of a feature, addition, repair, etc., is less than the actual cost of that item. Also called Principle of Diminishing Returns.
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Principle of Increasing Returns
The theory that the added value of an additional feature, addition, repair, etc., is more than the actual cost of the item.
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Proforma Statement
A schedule of the projected income and expenses for a real estate investment over a given period.
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Progression
A principle that says the value of a smaller and less expensive home is positively affected when it is surrounded by larger and more expensive homes. Usually said about the "worst" home in the "best" area. The worth of a lesser valued residence tends to be enhanced by association with higher valued residences in the same area.
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Property
Anything that may be owned and gained lawfully.
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Quantity Survey
Method A cost approach appraisal method where the appraiser counts the number and type of each part and material that were used to construct the building, plus adding a cost for labor, profit, permits, etc. A detailed estimate of all labor and materials used in the components of a building. Items such as overhead, insurance and contractor’s profit are added to direct costs of building. This method is time consuming but very accurate.
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Real Estate Cycles
General swings in real estate activity, resulting in increasing or decreasing activity and property values, during different phases of the cycle.
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Real Estate Market
The mechanism by which rights and interests in real estate are sold, prices set, supply adjusted to demand, space allocated among competing alternate uses, and land–use patterns set.
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Reconciliation
The appraisal process of analyzing the values derived from the different appraisal approaches to arrive at a final value estimate or opinion. (1) The adjustment process of weighing results of all three appraisal methods to arrive at a final estimate of the subject property’s market value. (2) Also known as correlation.
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Regression
A principle that says the value of a larger, more expensive home is negatively affected when it is surrounded by smaller, less expensive homes. Usually said about the "best" home in the "worst" area.
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Rehabilitation
The restoration of a property to its former or improved condition without changing the basic design or plan.
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Replacement
Building the functional equivalent of the original building, using modern materials, usually the same size, layout, quality, and utility as the original.
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replacement cost
The cost of replacing improvements with modern materials and techniques.
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Reproduction
Building an exact duplicate of the original building, giving the new structure the exact same look and feel as the original.
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reproduction cost
The current cost of building a replica of the subject structure, using similar quality materials.
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Reproduction Cost
The cost of exactly duplicating a structure using the same material and design.
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Return
(1) Profit from an investment. (2) The yield.
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Return OF Investment
The protection of an investor’s equity in an investment.
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Return ON Investment (ROI)
The gain/profit an investor experiences from an investment relative to its cost to acquire.
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Sales Comparison Approach
An appraisal method that estimates the value of real property by performing a market analysis of the area where the subject property is located. Data are collected and adjustments made for the differences in the properties.
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Scarcity
A physical characteristic of real property that says there is a limited supply of real estate; the perceived supply of a good or service relative to the demand for the item. (1) The availability of a commodity in the marketplace. (2) A lack of supply of some type of real property resulting in increased value when deman exceeds supply.
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SCI
The mnemonic for three approaches to value: Sales comparison approach, Cost approach, and Income approach.
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Seller’s Market
A market condition situation in the housing market when a large number of buyers are looking for housing in an area of limited availability. Seller in a more comanding position than the buyer.
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seller’s permit
Allows a retailer to buy the product at wholesale prices without paying sales tax. The retailer must then collect the proper sales tax from customers and pay it to the State Board of Equalization.
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Situs
A place where something exists; the exact position of a piece of property, giving it value. A term used to describe the physical location of a property.
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smart growth
Reconciling the needs of development with the quality of life. Smart growth focuses on revitalizing older suburbs and older city centers.
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Square Foot Method
A cost approach appraisal method for determining the cost of a building, relying on cost manuals. The most common method used by appraisers and real estate agents to estimate the cost of construction.
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Stable
Monthly Income Income that can reasonably be expected to continue in the future.
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standard depth
Generally the most typical lot depth in the neighborhood.
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Straight-Line Depreciation
Simple depreciation method that takes the total cost of a building and divides that by the number of years the building is expected to be useful. A method of depreciation under which improvements are depreciated at a constant rate throughout the estimated useful life of the improvement.
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Subject Property
Property for which a value estimate is sought. Also called Base.
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subjective value
Value given for personal reasons.
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Substitution
A principle that says an informed buyer will not pay more for a property, or a feature in a property, than a comparable substitute. maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute property,
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Supply and Demand
An economic principle (in appraising) that says that for all products, goods, and services when supply exceeds demand, prices will fall, and when demand exceeds supply, prices will rise.
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surplus productivity, principle of
The net income that remains after the proper costs of labor, organization, and capital have been paid, which surplus is imputable to the land and tends to fix the value thereof.
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TIMMUR
The mnemonic for Taxes, Insurance, Management, Maintenance, Utilities, and Reserves.
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T-intersection lot
A lot that is fronted head-on by a street. The noise and glare from headlights may be detractors from this type of lot.
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Topography
A description of surface features of land.
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unearned increment
An increase in value to real estate that comes about from forces outside the control of the owners, such as a favorable shift in population.
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unit-in-place method
Cost of units in the building as installed is computed and applied to the structure cost. The total costs of walls in place, heating units and roof are figured on a square-foot basis, including labor, overhead, and profit. This is the most detailed method of estimating value.
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Unit-in-Place Method
A cost approach appraisal method for determining the cost of a building that estimates the cost of reproducing a building by looking at the unit cost of each of the component parts of the structure and adding all of these unit costs together.
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useful life
The time frame when an asset (e.g., a building) is expected to remain economical to the owner.
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utility
The ability of a property to satisfy a need or desire, such as shelter, income or amenities.
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utility value
The usefulness of the property to its owner.
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vacancy factor
Loss of income because of a vacant unit.
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Valuation
The process of estimating market value.
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Value
The monetary relationship between properties and those who buy, sell, or use those properties. (1) The present and future anticipated enjoyment or profit from the ownership of property. (2) Also known as worth.
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Waste
The actions of a life tenant who uses the property in a way that damages it or reduces its market value.
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Wear and Tear
The lessening in value of an asset due to ordinary and normal use.
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yield rate
(1) The yield expressed as a percentage of the total investment. (2) Also called rate of return.
