Principles 13 Flashcards
Equilibrium
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.
Gentrification
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
Growth
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
- profit
- 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.
Reconciliation
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.
