Principles 13 Flashcards Preview

Real Estate Principles > Principles 13 > Flashcards

Flashcards in Principles 13 Deck (40)
Loading flashcards...


Period of stability in the life cycle of a building or neighborhood in which little change is evident


External obsolescence

Economic or environmental obsolescence; loss in value due to outside causes, such as changes in nearby land use


Federally related transaction

Transaction that involves a federally chartered or insured lender.


Functional obsolescence

Loss in value due to adverse factors within a structure that effect its marketability, such as its design, layout, or utility.



Renovation of run-down properties in neighborhoods that are in decline.


Gross income multiplier (GIM)

-gross rent multiplier
-a number derived by dividing the sales price of a comparable property by the income it produces, which then is multiplied by the gross income produced by the subject property to derive an estimate of value



Period of life cycle of a neighborhood in which property development is ongoing.


Highest and best use

In appraising real estate, the most profitable, physically possible, and legally permissible use for the property under consideration.


Income capitalization approach

Appraisal method in which the actual or likely net operating income of property is divided by its expected rate of return (capitalization rate) to arrive at an estimate of market value


Index method

Way of estimating building reproduction cost by multiplying the original cost of the subject building by a factor that represents the percentage change in construction costs generally from the time of construction to the time of valuation


Market rent

The rent that could be charged for property at the present time, based on demand and the number of available properties.


Market value

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


Net operating income

-the money remaining after expenses are deducted from income.


Observed condition method

-Breakdown method
-depreciation computed by estimating the loss in value caused by every item of depreciation, whether curable or incurable


Physical deterioration

Loss in value brought about by wear and tear, disintegration, use, and action of the elements.


Potential gross income

The maximum income that property is capable of producing


Principle of progression

The worth of a less valuable building tends to be enhanced by proximity to buildings of greater value


Quantity survey method

-Way of estimating building reproduction cost by making a thorough itemization of all construction costs, both direct(material and labor) and indirect (permits, overhead, profit), then totaling those costs.



In appraising, the final step, in which the estimates of value reached by each of the 3 appraisal approaches (sales comparison, cost, and income capitalization) are weighed in light of the type of property being appraised, the purpose of the appraisal, and other factors, to arrive at a final conclusion of value.


Principle of Regression

A building’s value will decline if the buildings around it have a lower value


Replacement cost

The cost of a new building using modern construction techniques, design, and materials but having the same utility as the subject property.


Reproduction cost

The cost of anew building of exactly the same design and materials as the subject property.


Restricted use report

Property appraisal that will be limited in either the method of valuation used or the property interests value.


Restricted use report

Property appraisal that will be limited in either the method of valuation used or the property interests valued.



Period of property renovation and rebuilding in which neighborhood begins a new life cycle.


Sales comparison approach

-Market comparison approach
-market data approach
-appraisal method in which the sales prices of properties that are comparable in construction and location to the subject property are analyzed and adjusted to reflect differences between the comparables and the subject



-Relative lack of supply of a product
-one of the four basic elements of value that also include demand, utility, and transferability.


Self-contained report

-Narrative report
-Most comprehensive type of appraisal report, including a thorough statement of the background data supporting the opinion of value


Site value

Determination of land value exclusive of improvements


Square-foot method

Way of finding reproduction cost by multiplying the current cost per square foot of a comparable building by the number of square feet in the subject building.