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Chapter 9

Chapter 9 Mass Real Estate

TermDefinition
Accrued Depreciation Total depreciation to date. (Yearly depreciation times number of years).
Anticipation The appraisal principal, that value increases, or decreases based on the future benefit or detriment, that may be received.
Appraisal An estimate of value.
Appraisal Institute National association of real estate appraiser's, who are governed by a code of ethics, and control the awarding of various appraisal designations as Senior Residential Appraiser (S R A), and Member Appraiser Institute (M A I).
Appraised Value An estimate of what a parcel of property will sell for. An estimate of market value.
Appreciation An increase of value (opposite of depreciation).
Assemblage The process of combining two, or more lots to make the resulting parcel more valuable. The increase in value is known as plottage.
Assessed Value Value in which a city or town places on property as a base for determining taxes (appraised value times assessment rate).
Assessment Rate The % of Assessed Value that will be taxed.
Capitalization Rate (Cap Rate) Comparison of value to net income, used by an appraiser in estimating value of income property (net income divided by value).
Certified Appraiser Professional appraisal designation under the Financial Institution's Reform, Recovery and Enforcement Act (FIRREA) requiring a specific amount of classroom hours of training, field experience, and passing of state exams.
Change One of the economic variables to value in real estate appraisal, that recognizes that things are in a state of flux, and do not remain constant.
Comparable A recently sold or currently for sale parcel of real estate, that is similar to the subject property being appraised. Used as an indicator of value in a market comparison appraisal approach.
Comparative Market Analysis (CMA) An opinion of value derived by a market analysis, by a licensed salesperson or broker.
Condemnation The administration, or judicial procedure used when taking land by local, state, or federal government, for the public good called eminent domain.
Conformity The principle, which holds that a house will hold its value better in an area of like type houses.
Contribution The appraisal principle, that deals with the amount of increase in value to a piece of property, caused by improvements to the property (may be more or less than cost of the improvement).
Cost Approach Method of real estate appraisal, that estimates value by calculating replacement or reproduction cost.
Decreasing Return Concept in appraisal, that holds some improvements to real estate increase value by less than the amount invested.
Demand One of the elements of value in appraisal. The amount of goods that the market will buy at a certain price. Associated with supply.
Depreciation A reduction in value due to any cause. In appraisal of real estate it includes physical deterioration, functional obsolescence, and economic obsolescence.
Economic Obsolescence Loss of value due a number of forces outside the property owners control including economic, environmental and social change. A principal used an appraisal.
Exchange A transaction whereby part of the consideration, includes properties of "like kind" and or use. Capital gains tax deferment may be obtained using an exchange, if the transaction conforms to all requirements in I R S code 10 31.
Functional Obsolescence A loss in value due to outdated qualities caused by age or poor design. May be curable such as outdated electric wiring, or incurable such as low ceiling height.
Gross Income Total revenue from rents or other sources (prior to deduction for any expenses).
Gross Rent Multiplier A ratio of Market Value compared to Gross Rent. Used by an appraiser to estimate value, when the gross rent, and the gross rent multiplier are known.
Highest and Best Use An appraisal concept, that identifies the use of a parcel of property, that produces the highest net return, and therefore the highest value.
Income Approach Appraisal Technique, that uses the amount of net income property, will produce over its useful life to determine value. The net income (gross income less expenses) is divided by a capitalization rate determined by experience to determine value.
Increasing Return Concept in appraisal, that holds some improvements to real estate increased value, by more than the amount invested.
Market Approach Appraisal technique, that compares the subject property to similar properties, that have sold recently to establish value.
Market Value The most probable price property, will bring in assuming a knowledgeable seller and buyer, a fair and open market, and a reasonable time to market.
Mass Association of Real Estate Appraisers State Association of real estate appraisers, that set standards regulates membership, and issues professional designations of accomplishment.
Member Appraisal Institute (M A I) Professional designation issued to real estate appraisers, by the Appraisal Institute indicating competence in appraisal of all types of real estate.
Mill Rate Tax rates expressed as a tax per $1 of assessed value (a mill is one tenth of one cent).
Net Income Gross income (total revenue) less expenses.
Net Lease A lease where a lessee (tenant) pays a fixed rate plus other expenses. (Also known as Triple Net when tenant pays taxes, insurance, and other operating expenses).
Opinion of Value An estimate of property value by a real estate broker, or salesperson, does not require appraisers’ license.
Overimprovement An improvement, that based on cost exceeds the highest and best use. EXAMPLE: A $400,000 house built in a $200,000 neighborhood, or a $50,000 kitchen that only increases value of home by $30,000.
Physical Deterioration A reduction in property value due to a negative change in physical conditions. May be curable, or incurable. Could be caused by physical elements, such as weather, or by normal usage.
Plot Plan A map of individual lot showing dimensions of the lot, and the layout of any buildings, or other improvements on the lot. Used by a bank and or appraiser to verify that, there is no encroachment, or zoning violations, such as set back violations.
Progression An appraisal principle dealing with conformity, that holds the property is increased in value, when located near other property that is of higher value. EXAMPLE: A house surrounded by more expensive homes.
Rate of Return Comparison of the net income to total investment, for a parcel income property expressed as an annual percentage.
Reconciliation The part of the appraisal process, where the appraiser compares the most appropriate appraisal method with other methods used.
Regression An appraisal principle dealing with conformity, that holds property which is decreased in value, when located near other property of lesser value. EXAMPLE: A house surrounded by less expensive homes.
Replacement Cost The cost at current prices to replace a structure with the same materials. Often used as the same as reproduction cost, which require similar design and materials but not the same.
Reproduction Cost Same as replacement cost, but for a similar, not an exact duplication of a structure.
Scarcity An appraisal principle that a reduction in the availability, or supply of a good will increase its value.
Senior Residential Appraiser (S R A) Professional appraisal designation awarded, by the Appraisal Institute indicating competence in appraisal of 1 to 4 family residences.
Square Foot Approach Appraisal technique of estimating, cost by multiplying total square footage of times a constant of cost per square footage.
Fiduciary One who is in a position of trust, and confidence.
Financial Institution's, Reform, Recovery and Enforcement Act (FIRREA) Federal legislation setting minimum standards, each state must establish to regulate the real estate appraisal profession.
Substitution Appraisal principle, that holds a property’s value is determined by the cost to substitute a comparable piece of property, through purchase or construction.
Supply and Demand Economic principle used in property appraisals, that holds value which is influenced by the amount of property for sale (supply) and the number of potential buyers (demand).
Tax Rate The rate set by the city or town, which multiplied by property’s assessed value will yield the property’s annual tax.
Transferability The ability to transfer the legal bundle of rights without undue restrictions.
Unit-In-Place Appraisal method of estimating replacement, cost by individual component of a piece of property, and adding them together to arrive at estimated cost. EXAMPLE: Carpentry + electric + plumbing + carpeting = Total cost.
Utility Appraisal concept, that relates to the property’s usefulness as a measure of value.
Value What something is worth. The power of a good or service to command other goods in exchange.
Created by: sunaecm4