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chapter 17
new property valuation
| Question | Answer |
|---|---|
| Square foot method | Cost per square foot of a recently built comparable structure multiplied by the number of square feet in the subject property. |
| Appraisal | Estimate of the quantity, quality or value of something. |
| Arms length transaction | When the property does NOT sell for an unusually high or low price because of a special relationship between a buyer & a seller; parties are dealing from equal bargaining positions |
| Capitalization rate | The yield that an investor will demand for the investment of capital. This is the rate of return. |
| Comparable (COMP) | Property used in an appraisal report that is substantially equivalent to the subject property. |
| Comparative 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; an estimate of market value. |
| Cost Approach | the process of estimating the value of a property by adding the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation to the estimated land value. |
| depreciation | a loss of value in property due to any cause; an expense deduction for tax purposes taken over the period of ownership of income property |
| Economic Life | The period during which property is expected to remain useful for its original intended purpose. |
| Economic obsolescence (incurable) | Caused by factors outside the subject property & is not curable. ex: proximity to a polluting plant |
| Effective age | The apparent age of the building based on observed condition rather than chronological age. |
| Functional obsolescence curable | Physical or design features that are no longer considered desirable by property buyers but can be replaced or redesigned at low cost. ex: changing fixtures |
| Functional obsolescence incurable | Undesirable physical or design features that can't be remedied easily are considered functionally obsolete. ex: home w/ 5 bedrooms & 1 bath |
| gross rent multiplier (GRM) | a 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 capitalization approach to value | Estimate based on the present worth of the future rights to income. |
| Net operating income (NOI) | When you deduct the annual operating expenses of the real estate from the effective gross income. |
| physical deterioration | a reduction in a property's value resulting from a decline in physical condition;by action of elements or normal wear and tear. |
| Quantity survey method | Estimate based on the quantities of raw materials needed to replace the subject structure as well as of the current price of such materials & their installation costs. |
| 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 capitalization approaches to arrive at a final estimate of market value for the subject property. |
| Replacement cost | The construction cost, at current prices and using modern materials & methodology, of a property that is not necessarily an exact duplicate but serves the same purpose or function as the original property. |
| Reproduction cost | The dollar amount required to construct an exact duplicate of the subject building at current prices. This is mostly used when appraising historical homes. |
| Sales comparison approach | AKA the market data approach. When an estimate of value is obtained by comparing the subject property with recently sold comparable properties. |
| Square foot method | Cost per square foot of a recently built comparable structure multiplied by the number of square feet in the subject property. |
| Straight Line Depreciation | When the cost of an asset is depreciated evenly over its useful life. |
| 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. |
| Unit in place method | Estimating the replacement cost of a structure based on the construction cost per unit of measure of individual building components, including material, labor, overhead & builders profit. |
| Value | The power of a good or service to command other goods or services in exchange. Also, the present worth of future benefits arising from the ownership of real property. |
Created by:
whitwill
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