Term
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Definition
| an estimate of value (not necessarily the sales price), based on the property inspection date, performed by a qualified appraiser. |
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Term
| "Broker Price Opinion" (BPO) |
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Definition
| An opinion of value (not an appraisal) based on: recent sales, pending sales, current listings, etc..Often requested by lender for potential Real Estate Owned (REO) properties. |
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Term
| Comparative Market Analysis (CMA) |
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Definition
| An opinion of value (not an appraisal) based on: recent sales, pending sales, current listings, etc.. Occurs when an agent helps establish property value for a client based on comparable sales (comps). |
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Term
| Real Estate Owned (REO) Property |
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Definition
| Property owned by a lender-usually a bank-after an unsuccessful sale at a foreclosure auction. Prop. is usually worth less that what is owed on them. If the prop. is REO, the bank will then go through the process of trying to sell the prop. on its own. (Thus request for BPO) RE investors will often go after these properties. |
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Term
| Residential State Licensed Appraiser |
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Definition
can appraise only non complex (1-4 unit) residential properties.
Does not have to be a licensed agent but has to meet minimal requirements for RE appraisal licensure. |
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Term
| State Certified Appraiser |
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Definition
| can appraise all residential properties. They are held to higher requirements for licensure and are required for federally regulated financial institutions for transactions $1,000,000+ |
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Term
| Uniform Standards of Professional Appraisal Practice (USPAP) |
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Definition
| Appraisers must comply with these uniform standards of practice. |
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Term
| MAI (Member of the Appraisal Institute) |
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Definition
| most widely known professional designation from the Appraisal Institute. These appraisers typically specialize in income-producing property |
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Term
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Definition
| the primary world-wide real estate association promoting professionalism, ethics, practices & global standards in the real estate field. |
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Term
| American Society of Appraisers (ASA) |
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Definition
| the primary multi-discipline, international organization representing appraisers and establishes ethical practices & procedures. |
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Term
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Definition
| the highest price a ready, willing & able buyer/seller are willing to pay/sell for "within an arms length" The sales price |
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Term
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Definition
| the value determined for real property tax purposes. In HI = 100% Market Value |
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Term
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Definition
for accounting purposes:
Original Structure cost
-Depreciation (max 27.5yrs res/39 com)
+Value of improvements
+Value of the land |
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Term
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Definition
| this value determines the amount needed to cover improvements |
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Term
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Definition
| the value of the loan compared to the property value |
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Term
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Definition
the fee simple interest encumbered by a lease.
Therefore, if lease fee = market value
Leased fee value=fee simple value |
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Term
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Definition
| interest held by a tenant. If rent=market rate, leasehold value does not equal market value. If rent is less than market rate, there is positive leasehold value |
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Term
| Other considerations of value when appraising a property |
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Definition
1. the surrounding properties
2. Convenience to public tranport, shops, schools, beach, etc..
3. Living costs:taxes, maint. fees, transport
4. Government considerations: zoning, permits & bldg codes
5. the area in general & any other factors that my affect VALUE |
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Term
| Principle of Highest & Best Use |
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Definition
This main principle is the value according to what the property could be used for which are legal, physically possible & financially feasible.
Assumes owner/buyer is using property in its highest and best use |
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Term
| Principle of Contribution |
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Definition
| the value added by an improvement to the whole property |
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Term
| Principle of Substitution |
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Definition
used when valuing resid. prop. under the market sales method which involves comparing the subject property to comparable properties
ex. if the subject prop. asking price is $700K and comparables are selling for 625K the buyer would be willing to substitute a 625K home for the 700K home |
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Term
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Definition
| Changes can affect prop value. Nothing is constant, whether it be growth or decline. |
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Term
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Definition
strong demand for RE leads to increased competition, increased prices & development.
If there is a surplus in competition there can be an oversupply of housing an cause a collapse (Housing Bubble) |
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Term
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Definition
| this principle applies to similar properties (type, size, style, age, quality, etc..) of a given market. Conformity maximizes value. |
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Term
| Principle of Progression & Regression |
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Definition
| High-value properties suffer (regress) in proximity to lower-value properties & vice-versa. |
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Term
| Principle of Supply & Demand |
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Definition
| When the demand is greater than the supply, the price of houses and rents increase. When the supply is greater than the demand, the price of houses and rents decrease. Supply & demand are inversely proportional |
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Term
| Principle of Anticipation |
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Definition
| this principle relies on rumors or anticipated happenings. A rumor of something happening in a specific area may cause values of the surrounding properties to increase or decrease. |
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Term
| Principle of Increasing & Decreasing returns (on investment) |
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Definition
| When one has reached the maximum Return on Investment (ROI), there is a tipping point where investments will no longer add value |
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Term
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Definition
| loss in value (over time - the estimated useful life) of improvements |
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Term
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Definition
| loss of value due to physical wear & tear of an improvement |
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Term
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Definition
| loss in value due to reduced desirability because of its design & construction having become obsolete. This depreciation is curable, because the structure can be fixed. ie. shag carpets |
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Term
| Economic (External or Environmental) Obsolescence |
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Definition
loss of value due to factors outside the property itself. ie. change in zoning, neighborhood, public transport.
This depreciation is incurable because the property owner has no control over outside influences. |
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Term
| Market Sales Approach (market data, market comparison approach) |
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Definition
Most commonly used approach for appraising residential property.
Subject property vs. Comparable Prop |
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Term
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Definition
| the property that is being appraised |
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Term
| Comparable Property (comp) |
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Definition
| currently sold properties. In reconciling the value estimate, the appraiser uses a weighted avg. based on the most comparable prop. |
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Term
| CIA (Comparable Inferior Add) |
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Definition
Used to determine the subject property value using the Market Sales Approach.
Add value to inferior prop. for being less valuable than the subj. property |
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Term
| CBS (Comparable Better Subtract) |
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Definition
Used to determine the subject property value using the Market Sales Approach.
Subtract value from the comparable prop. for being more valuable than the subject property. |
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Term
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Definition
Used to determine the subject property (New Construction, Replacement Cost, Reproduction Cost, Unique prop -hosp., school, library) value based on the cost of construction.
For this approach the appraiser must:
a. Separate the value of land from impr.
b. Est. the cost of reproducing or replacing
c. Estimate all forms of depreciation
d. Add the land value to the depreciated cost
NOT used for re-sale property |
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Term
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Definition
| reproducing the existing structure as exact as possible using the same materials |
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Term
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Definition
| replacing the structure w/new structure of similar style, functionality & utility |
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Term
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Definition
Valuing income producing property, 2 possible approaches:
A. Capitalization (most widely used)
B. Gross Rent Multiplier (GRM) |
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Term
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Definition
Capitalization Rate=
Net Operating Income/Sales Price (value) |
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Term
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Definition
Gross Rent Multiplier =
Sales Price (value) / Gross Annual Rent |
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Term
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Definition
computes the present value of income extended over a period of time. The real prop. is valued by determing the NET income that can be produced over its economic life.
Used for: comm prop: apartments, office bldg, hotels & shopping centers |
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Term
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Definition
| the remaining period for which IMPROVEMENTS are expected to generate more income than operating expenses |
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Term
| Capitalization Rate (cap rate) |
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Definition
the rate of interest used to calculate the present value of future periodic loan payments = ROI + Rate of Return
How fast will the investment pay for itself? |
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