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Georgia Real Estate
Chapter 18 & 19
| Term | Definition |
|---|---|
| Settlement Statement | given to the buyer and seller to summarize the financial aspects of their transaction. It provides a clear picture of where the buyer’s and seller’s money is going at the closing. |
| Real Estate Settlement Procedures Act (RESPA). | The purpose of our RESPA is to regulate and standardized real estate settlement practices when federally related first mortgage loans are made on one to four-family residences, condominiums, and cooperatives. |
| Market value | the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale. |
| valuation process | the step-by-step procedure that appraisers use to conduct their work. |
| Characteristics of value | Demand Utility Scarcity Transferability. |
| The principle of anticipation | states that present value is influenced by the anticipation of future benefit. Investors buy property in anticipation of future income |
| principle of substitution | states that the present value of a property is influenced by what a person would have to pay for a reasonably desirable substitute. |
| principle of competition | states that demand creates profits, profits create competition, and competition stabilizes prices. |
| principle of change | reminds us that real property uses are always in a state of change. |
| principle of conformity | holds that maximum value was realize when there is a reasonable degree of homogeneity in the neighborhood. |
| Principle of Highest and Best Use | The highest and best use of a property is the use that will give the property it's greatest current value. |
| principle of supply and demand | refers to the ability of people to pay for land coupled with the relative scarcity of land |
| principle of increasing returns | states that a dollar spent adds a dollar to cost but more than a dollar to value. |
| principle of decreasing returns | states that a dollar spent adds a dollar to cost but less than a dollar to value. |
| principle of contribution | states that the worth of an improvement is measured by what it adds in overall value regardless of the cost. |
| Assessed value | value given to a property by the county tax assessor. |
| Estate tax value | the value that federal and state taxation authorities establish for a deceased person's property |
| Insurance value | concerned with the cost of replacing damaged property. |
| Loan value | is the value set on a property for the purpose of making a loan |
| assemblage | When two or more adjoining parcels are combined into one large parcel |
| plottage | If the assemblage causes an increase in value over the cost, the process |
| plottage value | The increased value of the large parcel over and above the some of the smaller parcels |
| Rental value | the value of a property expressed in terms of the right to its use for a specific period of time |
| Replacement value | value as measured by the current cost of building a structure of equivalent utility. |
| market approach | The first is to locate similar properties that have sold recently. This is the market approach, also called the market data approach or market comparison approach. |
| cost approach | add together the cost of the individual components that make up the property being appraised. |
| Depreciation | stimated and subtracted from the cost to obtain the current depreciated cost of the building. The land value is then estimated and added to the depreciated building cost to arrive at the estimate of value. |
| income approach | to consider only the amount of net income that the property can reasonably be expected to produce for the owner, plus or minus any anticipated price increase or decrease. |
| subject property | In a market comparison approach, the residence to be appraised |
| comparables or “comps” | After becoming familiar with the physical features and amenities of the subject property, the next step is to locate houses with similar physical features and amenities that have sold recently. |
| correlation process | gives the appraiser the opportunity to assign more weight to the more similar comparables and less to the others. |
| square foot basis | Subdivided lots zoned for commercial, industrial, or apartment buildings are usually appraised and sold |
| gross rent multiplier or GRM. | When a property produces income, a popular market comparison method GRM is computed by dividing the sales price of the property by its gross annual rent |
| Reproduction cost | the cost at today's prices of constructing an exact replica of the subject improvements using the same or very similar materials. |
| Replacement cost | the cost, at today's prices and using today's methods of construction, for an improvement having the same or equivalent usefulness as the subject property. Replacement cost is the more practical choice |
| quantity survey method. | The most accurate but also the most time-consuming and difficult method to estimate construction cost |
| unit in place | method takes into consideration the cost of the unit of construction inclusive of labor and materials and then estimates how many units would be needed. |
| Physical deterioration | results from wear and tear through use. Actions of nature in the form of sun, rain, heat, cold, and wind. Physical deterioration can also result from neglect. |
| Functional obsolescence | results from outmoded equipment, faulty or outdated design, inadequate structural facilities and over-adequate structural facilities |
| Curable depreciation | when the benefit to cure equals or exceeds the cost to cure. |
| Incurable depreciation | occurs when the cost to cure exceeds the economic benefit |
| Economic obsolescence | also known as external obsolescence. It is the loss of value due to external forces or events. Economic obsolescence is always considered to be incurable. |
| actual age | the age of the property measured in years |
| effective age | the age the building appears to be. |
| physical life | the number of years a building will be physically sound |
| economic life | how long the building can continue to be productive. Economic life is always shorter than physical life. |
| straight-line depreciation | To compute straight-line depreciation, the cost of the building is divided by the economic life. The resulting depreciation per year is multiplied by the effective age. |
| capitalize | to convert future income to current value. |
| projected gross | represents expected rentals from the subject property on a fully occupied basis. Vacancy and collection losses are subtracted from this. |
| Reserves for replacement | established for items that do not require an expenditure of cash each year. Reserves are established for other items that must be replaced or repaired more than once during the life of the building, but not yearly |
| net operating income (NOI) | The operating expense total is then subtracted from the effective gross income. The balance that remains is the net operating income (NOI). |
| Operating Expense Ratio | The operating expense ratio can be calculated by dividing the total operating expenses by the effective gross income |
| Fictional depreciation | what the US treasury allows property owners to deduct as an expense when calculating income taxes |
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