Term
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Definition
| Reproduction value is the value based on the cost of constructing a precise duplicate of the subject property's improvements, assuming current construction costs. |
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Term
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Definition
| Replacement value is the value based on the cost of constructing a functional equivalent of the subject property's improvements, assuming current construction costs. |
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Term
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Definition
| Salvage value refers to the nominal value of a property that has reached the end of its economic life. Salvage value is also an estimate of the price at which a structure will sell if it is dismantled and moved. |
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Term
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Definition
| Plottage value is an estimate of the value that the process of assemblage adds to the combined values of the assembled properties. |
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Term
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Definition
| Assessed value is the value of a property as estimated by a taxing authority as the basis for ad valorem taxation. |
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Term
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Definition
| Condemned value is the value set by a county or municipal authority for a property which may be taken by eminent domain. |
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Term
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Definition
| Depreciated value is a value established by subtracting accumulated depreciation from the purchase price of a property. |
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Term
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Definition
| Reversionary value is the estimated selling price of a property at some time in the future. This value is used most commonly in a proforma investment analysis where, at the end of a holding period, the property is sold and the investor's capital reverts to the investor. |
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Term
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Definition
| Appraised value is an appraiser's opinion of a property's value. |
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Term
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Definition
| Rental value is an estimate of the rental rate a property can command for a specific period of time. |
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Term
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Definition
| Leasehold value is an estimate of the market value of a lessee's interest in a property. |
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Term
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Definition
| Insured value is the face amount a casualty or hazard insurance policy will pay in case a property is rendered unusable. |
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Term
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Definition
| Book value is the value of the property as carried on the accounts of the owner. The value is generally equal to the acquisition price plus capital improvements minus accumulated depreciation. |
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Term
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Definition
| Mortgage value is the value of the property as collateral for a loan. |
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Term
| How does a broker’s opinion of value differ from an appraisal? |
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Definition
| A broker’s price opinion is not performed by a disinterested party or licensed appraisal professional. The broker’s price opinion typically only looks at the sales comparison approach and ignores USPAP regulations. |
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Term
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Definition
| USPAP is the uniform standards of professional appraisal practice and was adopted by Congress in 1989, and contains standards for all types of appraisal services, including real estate, personal property |
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Term
| Jerry’s property is worth $250,000 and Ira’s property is worth $400,000. If these two neighboring properties are combined, the value of the new property is $700,000. This is an example of what real estate value concepts? |
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Definition
| Assemblage and plottage value |
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Term
| Real estate value in general is the present monetary worth of benefits arising from the ownership of real estate. What are the primary benefits that contribute to real estate value? |
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Definition
| Income, appreciation, use and tax benefits |
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Term
| what are the steps in appraisal process? |
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Definition
Identify the purpose
Assimilate relevant data
Assess the highest and best use
Estimate the value of the land
Apply the three approaches to estimating value
Reconcile the values from the approaches
Compile the report |
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Term
| what does it mean to identify the purpose of an appraisal? |
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Definition
identifying the subject property by legal description
specifying the interest to be appraised
specifying the purpose of the appraisal, for example, to identify market value for a purchase, identify rental levels, or establish a value as collateral for a loan
specifying the date for which the appraisal is valid
identifying the type of value to be estimated |
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Term
| what does it mean to assimilate the data of an appraisal? |
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Definition
| The second step is to collect, organize and analyze relevant data about the subject property. Information relevant to the property includes notes and drawings from physical inspection of the subject, public tax and title records, and reproduction costs. Relevant information about the market includes environmental, demographic, and economic reports concerning the neighborhood, community, and region. |
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Term
| what does it mean to determine the highest and best use of an appraisal? |
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Definition
| The third step is to analyze market conditions to identify the most profitable use for the subject property. This use may or may not be the existing use. |
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Term
| what does it mean to determine the land value of an appraisal? |
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Definition
| The fourth step is to estimate the land value of the subject. An appraiser does this by comparing the subject site, but not its buildings, with similar sites in the area, and making adjustments for significant differences. |
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Term
| what does it mean to use the 3 approaches of an appraisal? |
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Definition
| The fifth step is to apply the three basic approaches to value to the subject: the sales comparison approach, the cost approach, and the income capitalization approach. Using multiple methods serves to guard against errors and to set a range of values for the final estimate. |
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Term
| what does it mean when doing reconciliation for an appraisal? |
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Definition
The sixth step is to reconcile the value estimates produced by the three approaches to value into a final value estimate. To do this, an appraiser must
· weigh the appropriateness of a particular approach to the type of property being appraised
· take into account the quality and quantity of data obtained in each method |
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Term
| the final step for an appraiser is to generate a what |
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Definition
| report. The final step is to present the estimate of value in the format requested by the client. |
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Term
| what is total net adjustment amount? |
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Definition
| The third reliability factor in weighting comparables is the total net value change of all adjustments added together. If a comparable's total adjustments alter the indicated value only slightly, the comparable is a good indicator of value. If total adjustments create a large dollar amount between the sale price and the adjusted value, the comparable is a poorer indicator of value. Fannie Mae, for instance, will not accept the use of a comparable where total net adjustments are in excess of 15% of the sale price. |
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Term
| List the steps of the appraisal process. |
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Definition
| dentify the purpose, assimilate relevant data, assess the highest and best use, estimate the value of the land, apply the three approaches to estimating value, reconcile the values from the approaches, and compile the report. |
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Term
| A comparable property has a $5,000 porch that the subject project does not. How do you make this adjustment? |
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Definition
| Deduct $5,000 from the sales price of the comparable. |
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Term
| What are the qualifications to be a “comparable” property? |
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Definition
| A property must: resemble the subject in size, shape, design, utility and location; have sold recently; have sold in an arm’s-length transaction. |
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Term
| curable vs incurable depreciation |
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Definition
| Curable deterioration occurs when the costs of repair of the item are less than or equal to the resulting increase in the property's value. For example, if a paint job costs $3,000, and the resulting value increase is $4,000, the deterioration is considered curable. Incurable deterioration is the opposite: the repair will cost more than can be recovered by its contribution to the value of the building. For example, if the foregoing paint job cost $5,000, the deterioration would be considered incurable. |
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Term
| what is accrued depreciation? |
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Definition
| Accrued depreciation is often estimated by the straight-line method, also called the economic age-life method. This method assumes that depreciation occurs at a steady rate over the economic life of the structure. Therefore, a property suffers the same incremental loss of value each year. |
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Term
| what is the economic life of real estate? |
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Definition
| The economic life is the period during which the structure is expected to remain useful in its original use. The cost of the structure is divided by the number of years of economic life to determine an annual amount for depreciation. The straight-line method is primarily relevant to depreciation from physical deterioration. |
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Term
| true or false: cost approach to appraisals adds land value to the price |
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Definition
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Term
| What are the primary disadvantages of the cost approach? |
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Definition
| Depreciation is difficult to measure and that the cost to create improvements is not necessarily the same as market value. |
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Term
| What is the difference between reproduction cost and replacement cost? |
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Definition
| Reproduction cost assumes you are building a precise duplicate where replacement cost assumes a functional equivalent of the subject improvements. |
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Term
| What is the first step in the cost approach? |
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Definition
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Term
| what are the steps in the income capitalization approach? |
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Definition
Estimate potential gross income.
Estimate effective gross income.
Estimate net operating income.
Select a capitalization rate.
Apply the capitalization rate. |
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Term
| what is an estimate of potential gross income? |
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Definition
| Potential gross income is the scheduled rent of the subject plus income from miscellaneous sources such as vending machines and telephones. Scheduled rent is the total rent a property will produce if fully leased at the established rental rates. |
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Term
| what is an estimate of effective gross income? |
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Definition
Effective gross income is potential gross income minus an allowance for vacancy and credit losses.
Vacancy loss refers to an amount of potential income lost because of unrented space. Credit loss refers to an amount lost because of tenants' failure to pay rent for any reason. Both are estimated on the basis of the subject property's history, comparable properties in the market, and assuming typical management quality. The allowance for vacancy and credit loss is usually estimated as a percentage of potential gross income. |
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Term
| what is an estimate of net operating income? |
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Definition
| Net operating income is effective gross income minus total operating expenses. |
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Term
| what is capitalization rate? |
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Definition
| The capitalization rate is an estimate of the rate of return an investor will demand on the investment of capital in a property such as the subject. The judgment and market knowledge of the appraiser play an essential role in the selection of an appropriate rate for the subject property. In most cases, the appraiser will research capitalization rates used on similar properties in the market. |
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Term
| how does an appraiser apply the capitalization rate in the income cap. approach? |
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Definition
| An appraiser now obtains an indication of value from the income capitalization method by dividing the estimated net operating income for the subject by the selected capitalization rate |
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Term
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Definition
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Term
| What is the last step of the income capitalization approach? |
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Definition
| Apply the capitalization rate. |
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Term
| How do you calculate net operating income? |
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Definition
| Effective gross income minus total operating expenses. |
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Term
| The value of a property is $236,000 and the monthly rent is $2,000. What is the gross rent multiplier (GRM)? |
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Definition
| GRM = 118. Divide $236,000 by $2,000 |
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Term
| what does FIRREA stand for? |
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Definition
Financial Institutions Reform, Recovery and Enforcement Act in response to the savings and loan crisis of 1989.
Title XI of FIRREA requires that competent individuals whose professional conduct is properly supervised perform all appraisals used in federally-related transactions. As of January 1, 1993, such federally-related appraisals must be performed only by state-certified appraisers. |
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Term
| what is the competency provision for USPAP? |
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Definition
| The "competency" provision requires appraisers to assess whether they have the necessary knowledge and competence to perform a specific assignment. If they do not, they must disclose this fact. |
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Term
| what is the departure provision for USPAP? |
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Definition
| provision permits appraisers to perform an appraisal that does not meet all the USPAP guidelines provided they have informed the client of the limitations of the incomplete appraisal and if the partial appraisal will not be misleading. |
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Term
| What piece of legislation initiated the appraisal regulation? |
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Definition
| The Financial Institutions Reform, Recovery, and Enforcement Act |
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