Paired sales
is based on the premise that when two properties are equivalent in all respects but one the value of the single difference can be measured to indicate the difference in price between the two properties
Sales comparison approach
an opinion of market value as developed by comparing properties.
Units of comparison
the components into witch a property may be divided for purpose of comparison, ex. Price per square foot, front foot , cubic foot, room, bed, seat, apartment unit. These units usually facilitate analysis even when the properties are not very comparable
Reconciling value
Necessary in nearly all sales analyses because the appraiser will usually analyze many sales that may lead to several different conclusions.
Comparative analysis
is the general term used to identify the process in which quantitative and qualitative techniques are applied to comparable sales to derive a value indication in the sales comparison approach
Data analysis
Paired data analysis is based on the premise that when two properties are equivalent in all respects but one the value of the single difference can be measured to indicate the difference in price between the two properties
Bracketing
A Process in which an appraiser determines a probable range of values for a property by applying qualitative techniques of comparative analysis to a group of comparable sales
Concessions
Often a seller may give some sort of financial incentive to induce a buyer to make an offer on the seller's property rather than on a competitor's property.
Market conditions
Comparable sales that occurred under market conditions different from those applicable to the subject on the effective date of value require adjustment for any difference that affects their values.
Kelo vs. city of New London
was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another private owner to further economic development. In a 5-4 decision, the Court held that the general benefits
Offsite improvements
Such as streets, sidewalks, curbing, traffic signals, and water and sewer mains, located off the property itself but necessary to facilitate development
Onsite improvements
Improvements such as grading, landscaping fences gutters paving draining and irrigation system walks and other physical enhancements to the land
Highest and best use as vacant land
Even if the site has improvements the site values is based on its highest and best use as though vacant and available for development to its most economic use.
Sales comparison approach for vacant land
The sales comparison approach is usually the preferred methodology for developing a site value conclusion. when this approach is used most of the techniques for adjusting comparable can be used. When sales of similar parcels are not plentiful enough for t
Market extraction allocation
a technique in which land value is extracted from the sale price of an improved property by deducting the contributory value of the improvements, often estimated at their depreciated cost.
Cost approach
a property is valued based on a comparison with the cost to build a new or substitute property. The cost estimated is adjusted for the depreciation evident in the existing property.
Condition
the estimate of development cost is adjusted for market-extraction losses in value caused by age condition and utility of subject improvements or for location problems
Reproduction Cost
The estimated cost to construct at current prices as of the effective appraisal date, a substitute for the building being appraised using modern materials and current standards, design, and layout
Replacement Cost
The estimated cost to construct, at current prices as the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embo
Direct cost
Expenditures of the labor and materials used in the construction of improvements also called hard cost
Indirect construction cost
Expenditures or allowances for items other than labor and materials that are necessary for construction but are not typically part of the construction contract indirect cost may include administrative cost professional fees financing cost and interest pai
Entrepreneurial incentive
- Developers, contractors, investors, and others compete against each other in the real estate marketplace and any building project will include an economic reward sufficient to induce an entrepreneur to incur the risk associated with that project in that
Depreciation
that difference between that contributory values of a improvement and its cost at the time of the appraisal
Physical
Wear and tear from regular use, the impact of elements or damages
Functional Obsolescence
a flaw in the structure, materials or design that diminishes the function utility and value of the improvement
External obsolescence
A temporary or permanent impairment of the utility or salability of an improvement or property due to negative influence outside the property
Contract data
may be obtained from construction contract building contracts and published or computer assisted cost estimating services
Comparative unit Method
Used to derive a cost estimate in terms of dollar per unit of area or volume based on known cost of similar structures that are adjusted for time and physical differences usually applied to total building area
Unit in place Method
a cost estimating method which total building cost is estimated by adding together the unit cost for various building components as installed
Quantity survey method
a cost estimating method which the quantity and quality of all materials used and all categories of labor required and estimated and unit cost figures and applied to arrive at total cost estimates for labor and materials
The market extraction method
uses availability of comparable sales from which depreciation can be extracted. ( only use if sufficient data is available
The economic age-life method
total depreciation is estimated by calculating the ratio of the effective age of property to its economic life expectancy and applying this ratio to the property's total cost (effective age/ total economic life) x total cost = depreciation
The breakdown method
the most comprehensive and detailed way to measure depreciation because it segregates total deprecation into individual components parts Physical deterioration, Functional obsolescence, External obsolescence
Curable or incurable
Items of physical deterioration or functional obsolescence are economically feasible to cure if the cost to cure is equal to or less than the anticipated increase in value of the property, if the cost to cure is more than the anticipated increase in value
Actual age
historical age or chronological age is the number of years that have elapsed since building constructions was completed
Effective age
the age indicated by the condition and utility of a structure and is based on an appraiser's judgment and interpretation of market perceptions
Economic life
begins when it is built and ends when the improvements no longer contribute value for the use for which it was originally intended and is no longer the highest and best use of the underlying land
Curable physical deterioration
Know as deferred maintenance, applies to items in need of immediate repair on the effective date of the appraisal ex( broken windows, a broken HVAC system, carpet needed immediate replacement , a leaking roof, or inoperable restrooms
Principle of anticipation
fundamental to the income capitalization approach... All income capitalization methods, techniques and procedures attempt to consider anticipated future benefits and estimate their present value
Applicability and limitation
any property that generates income can be valued using the income capitalization approach. When more than one approach to value is used to develop an opinion of value for an income producing property that value indication produced by the income capitaliza
Leases
a written document in which the right to use and occupy land or structure are transferred by the owner to another for a specified period of time in return for a specified rent
Flat rental lease
stays constant throughout the lease
Variable rental lease
rent is based on profits made by tenanting's
Step up or step down rental lease
provides for specified change in amount of rent at once or more points during the lease term
Revaluation lease
provides for periodic rent adjustment based on revaluations of market rent under prevailing market conditions
Percentage lease
some or all of the gross income is based on a specified percentage of the column of business productivity or use of achieved by the tenant
Gross lease
Ternate pays rent and land load pays expenses
Modified gross lease
tenant and landlord share expenses
Net lease
landlord passes all expenses to tenant
PGI (Potential gross income)
total income attributable to real property at full occupancy before vacancy and operating expenses are deducted
EGI (Effective gross income) -
The anticipated income from all operations of the real property after an allowance is made for vacancy and collection losses and addition is made for any other income
NOI (Net operating income)
The actual or anticipated income that remains after all operating expenses are deducted from effective gross income but before mortgage debt services and book deprecation are deducted
Fixed expenses
operating expenses that generally do not vary with occupancy and that prudent management will pay weather the property is I occupied or vacant
Variable expenses-
operating expenses that generally vary with that level of occupancy or the extent of services provided
Discount rate
A yield rate used to convert future payment or receipts into present value; usually considered to be a synonym for yield rate
Return of Capital
the recovery of invested capital, usually through income and or revisions
Return on Capital
that additional amount received as a compensation for use of an investor's capital until it recaptured. The rate of return on capital is the yield rate or the interest rate earned or expected
Rent concessions
where the real estate markets are over supplied landlord may give tenants concessions
Escape clause
a provision that allows a tenant to cancel a lease
Acceleration clause
a clause that allows for the landlord to collect the remaining rent and evict the tenant because of breaking any clause in the lease
Reconciliation
last phase of appraisal
Accuracy
measured by the appraiser's confidence in the accuracy of the data and the adjustment made to each comparable property analyzed.
Final opinion of value
in an appraisal report it may be stated as a single figure as a range of values or in relation to a benchmark amount
Form reports
an appraiser report presented on a form such as those required by financial institutions insurance companies and government agencies.
URAR
the uniform residential appraisal report and A1 report forms
Certification
the certification usually follows the final opinion of value and must be signed by the appraiser. It states that the appraiser has personally conducted the appraisal in an unbiased objective manner in accordance with USPAP
General assumptions
may be stated in the letter of transmittal but they are usually included as a separate page in the report.
Competency rule
appraisers must disclose any lack of knowledge or experience necessary to complete an assignment before accepting the assignment