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Real Estate - Ch. 16
Real Estate Appraisal
| Term | Definition |
|---|---|
| accrued depreciation | Loss in a property’s value resulting from physical deterioration, external depreciation, and functional obsolescence. |
| anticipation | The appraisal principle holding that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property. |
| 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. |
| appraiser | An independent person trained to provide an unbiased estimate of value. |
| Appraiser Independence Requirements (AIR) | Regulations issued by Fannie Mae that must be followed by appraisers to ensure accurate and objective appraisals. |
| assemblage | The combining of two or more adjoining lots into one larger tract to increase their total 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. |
| competition | The appraisal principle stating that excess profits generate competition. |
| conformity | The appraisal principle holding that the greater the similarity among properties in an area, the better they will hold their value. |
| contribution | The appraisal principle stating 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 | (1) 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 land. |
| external obsolescence | Incurable depreciation caused by factors not on the subject property, such as environmental or economic factors. |
| functional obsolescence | A loss of value to an improvement to real estate arising from problems of design or utility. |
| 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; usually used for commercial property. |
| 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; usually used for single-family residential property. |
| highest and best use | The legally permitted and physically 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 diminishing returns | Point at which additional property improvements do not increase the property’s income or value. |
| market data approach | Also known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties. |
| 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 anticipated vacancy and collection losses 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 the value of a lesser-quality property is favorably affected by the presence of a better-quality property. |
| property inspection waiver (PIW) | An option to waive an appraisal for an eligible loan purchased by Fannie Mae. |
| reconciliation | The final step in the appraisal process, in which the appraiser considers the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final opinion of market value for the subject property. |
| regression | An appraisal principle that the value of a better-quality property is affected adversely by the presence of a lesser-quality property. |
| sales comparison approach | The process of estimating the value of a property by examining and comparing sales and listings of comparable properties. |
| sales price | The amount of money paid to a seller for the product sold. |
| substitution | An appraisal principle 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 that follows the interrelationship of the supply of and demand for real estate. |
| Uniform Standards of Professional Appraisal Practice (USPAP) | A set of standards developed by the Appraisal Foundation that details information required for a property appraisal. |
| value | The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities. |
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katiestapley
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