Chapter 13

Question 1

appraisal

Answer 1

an estimate of value

Question 2

Comparative Market Analysis

Answer 2

(CMA) presentation and analysis of the competition in the marketplace for a particular property for the purpose of arriving at a market price or listing price (for clients)

Question 3

Broker Price Opinion

Answer 3

(BPO) same as CMA but for customers; non-provisional brokers not allowed to do for a fee

Question 4

probable sales price

Answer 4

a broker’s estimated price of a property being listed

Question 5

value/market value

Answer 5

the anticipation of future benefits resulting from ownership of a particular property

Question 6

cost

Answer 6

a measure of expenditures of labor and materials made some time in the past

Question 7

price

Answer 7

the amount of money paid for a property

Question 8

value in use

Answer 8

a special value to a person, usually the owner of a property. The property takes on either a subjective or objective value to the owner

Question 9

subjective value

Answer 9

stems from pride of ownership and is not reflected by the general public (when an owner believes her property is worth more that its market value)

Question 10

objective value

Answer 10

an income from a use of the property for which there is little or no competitive market demand (the value in use may be greater than its value in exchange)

Question 11

valuation

Answer 11

estimating what the average buyer would pay for a property, or its fair market value

Question 12

evaluation

Answer 12

the economic feasibility of a project

Question 13

effective demand

Answer 13

the absorption rate of the market

Question 14

Characteristics of Value

Answer 14

(DUST) 1. Demand 2. Utility 3. Scarcity 4. Transferability

Question 15

Demand

Answer 15

a desire or need for a property that is coupled with the financial ability to satisfy the need

Question 16

Utility

Answer 16

how one can use a property

Question 17

Scarcity

Answer 17

based on the supply of the property in relation to the effective demand for the property

Question 18

Transferability

Answer 18

owner is able to transfer title

Question 19

Forces that Influence Value

Answer 19

1. Social trends 2. Economic forces 3. Government controls & regulations 4. Physical force

Question 20

Principles of Value

Answer 20

1. Supply & Demand
2. Anticipation
3. Substitution
4. Conformity
5. Contribution
6. Competition
7. Change
8. Highest & Best Use

Question 21

Supply & Demand (Principles of Value)

Answer 21

the greater the supply of any commodity in comparison with the demand for that commodity, the lower the value (high supply, low demand=lower value); the smaller the supply and the greater the demand, the higher the value (low supply, high demand=higher value)

Question 22

Anticipation

Answer 22

property value is based on the anticipation of the future benefits of ownership; present value of future income

Question 23

Substitution

Answer 23

the principle providing that the highest value of a property has a tendency to be established by the cost of purchasing or constructing another property of equal utility and desirability, provided the substitution could be made without unusual delay

Question 24

Conformity

Answer 24

homogeneous or compatible uses of land within a given area; these properties have tend to be of similar size, style, age, construction, and quality

Question 25

Contribution

Answer 25

carious elements of a property add value to the entire property

Question 26

comparable

Answer 26

a recently sold property that is compared to the subject property to determine the value of the subject property

Question 27

Competition

Answer 27

when the net profit generated by a property is excessive, the result is to create very strong competition

Question 28

Change

Answer 28

all properties undergo a life cycle; phase include: growth, stabilization, decline, renewal

Question 29

Highest & Best Use

Answer 29

use which will give the owner the highest net rate of return or profitability

Question 30

Sales Comparison Approach (Market Date)

Answer 30

compares subject property to similar properties sold recently

Question 31

Cost Approach

Answer 31

theoretically rebuilds the structure anew and then adjusts it to its present condition

Question 32

Income Method

Answer 32

applies the capitalization formula to the income (rent) produced

Question 33

subject property

Answer 33

the property being appraised

Question 34

reconciliation

Answer 34

a weighted average of the adjusted sales price of the comparable to determine a single reliable estimate of value for the property being appraised (subject property)

Question 35

Cost Approach

Answer 35

the primary method for estimating value when there are not sufficient comparables and when it does not involve an income-producing property.

Question 36

Reproduction Cost

Answer 36

cost to rebuild an exact duplicate of the property when new

Question 37

Replacement Cost

Answer 37

cost to rebuild using today's modern building materials and construction techniques

Question 38

quantity survey method

Answer 38

cost approach method that breaks down the task into an in-depth materials cost and then add in the costs of labor, permits, overhead, taxes, and profit

Question 39

unit-in-place method

Answer 39

cost approach method that breaks the costs into an estimate for various units

Question 40

square-foot method

Answer 40

cost approach method; determine what similar properties are costing per square foot to construct and then multiply this cost by the number of square feet within the improvements

Question 41

depreciation

Answer 41

an actual loss of value from any cause

Question 42

effective age

Answer 42

age that a property appears to be based on its condition

Question 43

chronological age

Answer 43

the actual age of the property

Question 44

physical deterioration

Answer 44

wear & tear; deferred maintenance; one cause of depreciation in the Breakdown Method

Question 45

Functional obsolescence

Answer 45

poor or outdated design, inside the property lines; one cause of depreciation in the Breakdown Method

Question 46

economic obsolescence

Answer 46

external factors, always outside the property lines; one cause of depreciation in the Breakdown Method

Question 47

Causes of Depreciation in Breakdown Method

Answer 47

1. physical deterioration 2. functional obsolescence 3. economic obsolescence

Question 48

Depreciation Methods

Answer 48

1. Age/Life (Straight-line) 2. Market Abstraction 3. Breakdown

Question 49

curable

Answer 49

easily remedied and economically feasible

Question 50

incurable

Answer 50

not capable of being remedied or too costly

Question 51

income approach

Answer 51

(income capitalization approach) the primary method used to estimate the present value of properties that produce rental income

Question 52

capitalization

Answer 52

the process of converting net operating income into an indication of value

Question 53

net operating income

Answer 53

(NOI) Income remaining after deducting all vacancy losses and operating expenses from gross income. ( Gross Income - Vacancy Loss - Operating Expenses = NOI )