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Real Estate - Exam 2

Ch 7

TermDefinition
Accrued depreciation In cost appraisal, the identification and measurement of reductions in the current market value of a property from today's reproduction cost
Adjustments Additions or subtractions from a comparable sale price or cost which are required to make the comparable property more directly comparable to the subject property
Appraisal An unbiased written estimate of the fair market value of a property
Appraisal report The document the appraiser submits to the client and contains the appraiser's final estimate of market value, the data upon which the estimate is based, and the calculations used to arrive at the estimate
Arm's length transaction A transaction between two parties that have no relationship with each other and who are negotiating on behalf of their own best interests. A fairly negotiated transaction and reasonably representative of market value
Comparable properties Properties similar to the subject property used in the sales comparison approach to calculate a single indicated value for the subject property
Elements of comparison The relevant characteristics used to compare and adjust the sale prices of the comparable properties in the sales comparison approach
External obsolescence Losses of property value caused by forces or conditions beyond the borders of the property. The losses are deducted from a building's reproduction cost in the cost approach to estimating market value
Functional obsolescence Losses in value of a building relative to its reproduction cost because the building is not consistent with modern standards or with current tastes of the market
Highest and best use The use of a property found to be 1) legally permissible, 2) physically possible, 3) financially feasible, and 4) maximally productive
Indicated value The final value estimate for the subject property resulting from application of one of the major approaches in the appraisal process
Investment value The value of the property to a particular investor, based on his or her specific requirements, discount rate, expectations, and so on
Market conditions The relationship between supply and demand for a particular type of real estate in a local market at a specified point in time
Market value The price a property should sell for in a competitive market when there has been a normal offering time, no coercion, arm's-lenght bargaining, typical financing, and informed buyers and sellers
Nonrealty items Items of personal property
Physical deterioration Loss of value of a building from its reproduction cost, resulting from wear and tear over time
Property adjustments Five sale price adjustments made to comparable property transactions prices: location, physical characteristics, economic characteristics, use, and nonrealty items
Reconciliation The process of forming a single point estimate from two or more numbers. It is used widely in the appraisal process. For example, in the sales comparison approach to develop a single indicated value from several final adjusted sale prices of comparable
Repeat-sale analysis Estimation of the rate of property appreciation through statistical examination of properties that have sold twice during the sample period. Normally, the analysis is by statistical regression
Replacement cost The cost to build a new building of equal utility to an existing building that is not an exact physical replica of the existing building
Reproduction cost The cost to build a new building that is exactly like an existing building in every physical detail
Restricted appraisal report Provides a minimal discussion of the appraisal with large numbers of references to internal file documentation. If the client just wants to know what the property is worth and does not intend to provide the appraisal to anyone for use or reference,
Self-contained appraisal report Includes all the detail and information that were relevant to deriving market value or the other conclusions within the report. Most self-contained appraisal reports use the "narrative" reporting option
Subject property The property for which an appraisal of fair market value is produced
Summary appraisal report This report summarizes the conclusions of the appraisal. The majority of the data and techniques used in the appraisal are kept in the appraiser's work file
Transactional adjustments In an appraisal, adjustments to comparable property transaction prices that concern the nature and terms of the deal
Transaction Price The prices observed on sold properties
Uniform Standards of Professional Appraisal Practice (USPAP) Rules of governing the appraisal process and reporting of appraisals that are developed by the Appraisal Standards Board of the Appraisal Foundation. Appraisers are obligated by law to follow these rules and guidelines
Created by: drewmad5