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Ch. 14: Appraisal
TX RE Exam: Appraisal
| Term | Definition |
|---|---|
| 4 Characteristics of Value | DUST - Demand, Utility, Scarcity and Transferability |
| cost | represents a measure of past expenditures |
| price | reflects the actual amount of money paid for a property |
| highest and best use | most probable use to which a property is suited that will result in its highest value |
| substitution | principle that states that maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable property |
| conformity | buildings in an area should be similar in design, construction, size, age |
| Principle of externalities | influences outside a property may have a positive or negative effect on value |
| plottage value | increased use and value that results from combining /consolidating adjacent lots into one |
| 3 approaches to value used by a professional appraiser | Sales comparison approach, cost approach, income approach |
| Describe the sales comparison approach | The value of the subject property is compared with the values of others like it that have sold recently. Because no two properties are exactly alike, adjustments must be made to account for differences. |
| Describe the cost approach | An appraiser calculates the cost of building a similar structure on a similar site. Then he subtracts depreciation (losses in value) to to arrive at a value for the subject property. Used for new construction, churches, schools. |
| Describe the income approach | An analysis based on the relationship between the rate of return that an investor requires and the net operating income that a property produces. Typically used for apartments, offices and retail. |
| Gross Rent Multiplier (GRI) | The GRM is computed by dividing the sales price of a property by its gross monthly rent. Often used to estimate the value of single-family residential properties that are not usually rented but could be. |
| reconciliation | The validity and reliability of each approach are weighed objectively to arrive at the single best and most supportable conclusion of value. |
| comparative market analysis | an abbreviated variation of the sales comparison approach, to assist sellers in pricing property or to assist buyers in determining how much to offer for a property. |
| market value | the most probable price a property should bring |
| appraisal | the act or process of developing an opinion of value |
| capitalization rate | An estimation of the rate of return that an investor will demand for investment in this type of building; determined by comparing the relationship of net income w/ sales prices of similar properties sold in current mkt |
| depreciation | Any condition that adversely diminishes value |
| economic life | the period over which a building can be profitably used |
| external obsolescence | caused by incurable factors not on the subject property such as environmental, social or economic forces |
| functional obsolescence | caused by a relative loss of building utility such as faulty building design or outdated equipment - can be curable or incurable |
| Gross Income Multiplier (GIM) | Ratio used to convert annual income into market value; sales price divided by annual gross income = GIM |
Created by:
Khassett
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