Appraisal
is the process of estimating the value of real estate.
assemblage
Combining of two or more adjoining properties into one.
automated valuation models
Many lenders utilize AVMs, or Automated Valuation Models, which is a computer program that will provide a quick synopsis of value.
comparative market analysis (CMA)
A Comparative Market Analysis (CMA) is an estimate of value used by sellers to determine the best asking price. It's used by buyers to determine an appropriate offer to make on a property. CMAs are not appraisal reports, yet they do you some of the same p
cost-depreciation approach
This approach involves finding a similar property, and reproducing the building as closely as possible, then depreciating for age and condition, etc.
curable
A defect, wear or utility condition that is fixable.
depreciation
A lowering in value due to any condition. Also a write off for taxes.
economic life
The life span that a building is useful. Usually, though not always, dictated by tax law.
federally related transaction
Involves federal financial regulatory agency in primary or secondary mortgage market and requires services of a state certified appraiser. Must be written and conform to USPAP. Applies to real estate related loans, Sale, lease, exchange, financing, etc. A
gross income multiplier (GIM)
The ratio between the gross yearly income and its' selling price. This ratio is compared to other investment properties to determine selling/buying value.
gross rent multiplier (GRM)
The ration between the monthly income and selling price and is used to compare investment properties. Works best for smaller rental units. Sale Price/Gross Monthly Rent=GRM
highest and best use
The most probable use of a property that is legally permissible physically, possibly financially, and results in maximum profitability.
income approach
The income approach method is the third way appraisers use to calculate value. This is used when the property produces income such as with rental units. Bases value on future income generated from the property. Used for income-producing property.
incurable
Property situations that diminish the value of the property and are not fixable at a cost less than the cost of replacement property.
market value
Market value is the highest price a willing buyer would pay and a willing seller would accept. It assumes that both the buyer and the seller are fully informed and equally motivated. It also assumes that the property has been marketed for sale for a reaso
over-improvement
A home owner that continues to improve a property past the maximum value is risking over improvement of the property.
plottage
Combining of two or more adjoining properties into one. Plottage is the added value that results from the assemblage of those properties.
principle of substitution
Principle of Substitution states that no prudent person would pay one million dollars when there is another one readily available that has the same use, design and income for five hundred thousand dollars, the lowest price one is preferred.
progression
The value of an inferior property is enhanced by association with superior properties.
reconciliation
An appraiser may choose three comps that the appraiser believes do not equally represent the subject property. If this happens he or she can use a process of applying weighted reconciliation to each home rather than taking a mathematical average.
regression
The value of a superior property is adversely affected by association with inferior properties.
replacement cost
Building a suitable replacement that will meet the same needs at the same quality but will not be exactly the same.
reproduction cost
Reproduction cost is as close to an exact duplicate as possible of the original structure.
sales comparison approach
Sales of similar properties is a good way to estimate value for a subject property. The subject property is the property that is being appraised. They pick comparable properties. Properties are chosen that have sold in a recent timeline and within the sam
situs
People's preferences for a certain area.
subject property
The subject property is the property that is being appraised.
Uniform Standards of Professional Appraisal Practice (USPAP)
USPAP are the standards that must be followed for an appraisal. USPAP is short for the Uniform Standards of Professional Appraisal Practice. USPAP rules regulate how an appraisal is performed and written.
valuation
Determination of how much something is worth.
Liquidation value
When money is needed quickly, a property can be sold at a value less than it would be within a normal time frame.
Cost
is how much money is required to produce the item. Includes the land, cost to acquire existing units, labor and materials. In the case of real estate, it means how much is costs to acquire the real estate with the house or building intact - or the cost of
Price
is the amount paid for an item. This price can be above or below the actual cost of the item. Sometimes in real estate, the seller of a property is not happy to learn that when they add up how much they have invested in a property, that the total cost is
Value
is how much something is worth to the average buyer and seller at any given time. Value changes over time. This is often a guessing game for investors in property and even regular sellers who try to determine the best time to sell - to get the most out of
Assessed value
the value determined for collecting property taxes.
Insurance value
value is calculated to determine the replacement cost of the property. This is the insurance value.
Value in use
Property is not always used as it is intended or as the highest and best use. Value in use is the estimation of value based on how a property is being utilized. It is based on the results and history of a property.
Liquidation value
When money is needed quickly, a property can be sold at a value less than it would be within a normal timeframe.
Salvage value
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Investment value
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Market Value
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Principle of Substitution
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Highest and best use
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Highest and Best Use as Vacant Land
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Highest and Best Use As improved property
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Concept of Substitution
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Conformity
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Demand
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Utility
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Scarcity
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Transferability
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Characteristics of Value
Goods and services, including real estate, has value if four characteristics apply: demand, utility, scarcity, and transferability.
Physical deterioration
is caused by several factors. Ordinary wear and tear from regular use over time. Excessive wear and tear from excessive use over time. Or Physical damage either from use, weather, accidents etc. with the proper maintenance.
Functional Obsolescence
is a type of depreciation that results in a loss of value. Buyer preferences change over time making the designs of some homes no longer desirable. Examples of functional obsolescence would be a 1 car garage.
External Obsolescence
is a loss of value or depreciation that is suffered due to something literally outside of their control. Let's say that a house has a beautiful view of a lake. But then someone builds a structure that blocks the view of the lake and instead gives them som
Age-Life Depreciation Method
The age-life method is a popular method to calculate depreciation to subtract from estimated reproduction/replacement cost. The age-life method requires the appraiser to attribute a total time period that the appraiser would expect a similar structure to
Cost-Depreciation Method
Land Adjustment The final step of the cost-depreciation method is to add the value of the land. This is the last step as land doesn't depreciate. Story Problem A property has been determined by an appraiser to have a depreciated value of $160,050. The lan
Income Approach Method:
The income approach method is used for income producing properties. It determines value based on future income expected to be generated from the property.
Potential gross income (PGI)
Potential gross income is the estimated income if the unit is 100% full of no vacancies.it assumes that everyone pays as they are supposed to which is actually unrealistic. Therefore, a memory trick for the definition of this term is to associate the "P
Effective gross income (EGI)
Effective gross income factors in the reality that there will always be vacancies and losses. Vacancies and losses are subtracted from the potential gross income. Any additional income for the property would be added. � Potential Gross Income (PGI) - loss
Net operating income (NOI)
Net operating income is the effective gross income minus operating expenses. See below. � Effective Gross Income (EGI) - operating expenses = NOI
Operating Expenses
Operating expenses include fixed expenses, variable expenses, and reserves for replacements of building components Not included in operating expenses are depreciation, costs of the mortgage and income taxes.
Fixed expenses
are things that do not change based on occupancy. These expenses must paid regardless of vacancies. Property taxes and hazard insurance are both fixed expenses.
Variable expenses
are expenses that will increase or decrease depending upon how the unit is being used and how full it is. It includes maintenance, utilities, supplies, etc.
Reserves
for replacement is money saved for future expenses such as roofing repairs, air condition, etc.