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Unit #18

Real Estate Appraisal

TermDefinition
Accrued Depreciation Loss in value resulting from the property's physical deterioration, external depreciation (decrease in price), and functional obsolescence.
Anticipation The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property
Assemblage The combining of two or more adjoining lots into one larger tract to increase their total value.
Appraisal An estimate of the quantity, quality, or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value
Broker's Price Opinion (BPO) An opinion of real estate value commissioned by a bank or an attorney and provided by a broker.
Capitalization Rate The rate of return a property will produce on the owner's investment.
Change The appraisal principle that holds that no physical or economic condition remains constant
Competitive Market Analysis (CMA) A comparison of the prices of recently sold homes that are similar to a listing seller's home in terms of location, style, and amenities.
Competition The appraisal principle that states that excess profits generate competition
Conformity The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value.
Contribution The appraisal principle that states that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value.
Cost Approach The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation
Depreciation In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence, and external obsolescence
Economic Life The number of years during which an improvement will add value to the land.
External obsolescence Incurable depreciation caused by factors not on the subject property, such as environmental, social, or economic factors
Functional obsolescence A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.
Gross Income Multiplier (Gim) A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property's value
Gross Rent Multiplier (GRM) The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property's value.
Highest And Best Use The possible use of a property that would produce the greatest net income and, thereby, develop the highest value.
Income Approach The process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life.
Law Of Increasing Returns Law that applies as long as money being spent on improvements produces an increase in income or value
Law Of Diminishing Returns Law that applies at the point where additional improvements do not increase income or value.
Market Value The most probable price that a property would bring in an arm's-length transaction under normal conditions on the open market.
Net Operating Income (NOI) The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses
Physical deterioration A reduction in a property's value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear.
Plottage The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.
Progression An appraisal principle that states that, between dissimilar properties, the value of the lesser-quality property is favorably affected by the presence of the better-quality property.
Reconciliation The final step in the appraisal process, in which the appraiser combines the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final estimate of market value for the subject property.
Regression An appraisal principle that states that, between dissimilar properties, the value of the better-quality property is affected adversely by the presence of the lesser-quality property.
Replacement Cost New The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original.
Reproduction cost The construction cost at current prices of an exact duplicate of the subject property.
Sales Comparison Approach The process of estimating the value of a property by examining and comparing actual sales of comparable properties
Sales Prices The amount of money paid to a seller for a product bought
State-certified Residential Real Property Appraiser May perform any appraisal that is not to be used in a federally related financial transaction and may perform appraisals for use in a federally related financial transaction without regard to transaction value.
State-certified General Real Property Appraiser May appraise any type of property for any purpose in Georgia.
State-licensed Real Property Appraiser May perform any appraisal that is not to be used in a federally related financial transaction and may perform appraisals for use in a federally related financial transaction in which the value of the transaction does not exceed $1 million.
Substitution An appraisal principle that states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution.
Supply And Demand The appraisal principle. Because appraising is based on economic concepts, this principle recognizes that real property, like any other commodity, is subject to the influences of the marketplace.
Uniform Standards of Professional Appraisal Practice (USPAP) A set of standards that details information required in an appraisal of residential property. This report is required by many government agencies.
3 Types of Depreciation Physical, Functional and External obsolescence
Depreciation is most often determined by The Straight Line Method
The Straight Line Method Properties Cost / # of years of expected economic life
Capitialization Rate Net Income / Salesprice
Determining Value Income / Rate
Determining Rate Income / Value
Determining Income Value x Rate
Gross Rent Multiplyer Salesprice / Monthly Income
Gross Income Multiplyer Salesprice / Annual Income
Three basic Valuation Techniques Sales Comparison, Cost and Income Approach
Two types of Appraisal Data General, Specific Data
Created by: jozie723