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chapter 17

new property valuation

QuestionAnswer
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