PSI Real Estate Exam: Valuation And Market Analysis

Amenity

A tangible or intangible feature that enhances and adds value to real estate.

Arm's Length Transaction

A transaction that occurred under typical conditions in the marketplace where each of the parties were acting in their own best interests.

Assemblage

The combining of two or more parcels of land into one larger parcel.

Balance

A condition that exists in the real estate market when there are slightly more homes available than buyers.

Buyer's Market

A situation in the housing market where buyers have a large selection of properties to choose from.

Capitalization

A way to convert a property's income figure into an estimated value.

Competitive Market Analysis

A method of determining the approximate market value of a home by comparing the subject property to other homes that have sold, are presently for sale, or did not sell in a given area.

Comparables

Other similar properties that have sold in a certain area.

Contribution

A "rule" that says a particular item or feature of a home is only worth what it actually contributes in value to that piece of property.

Demand

The need or desire for a specific good or service by others.

Diminishing Returns

Law that says beyond a certain point, the added value of an additional feature, addition, repair, etc. is less than the actual cost of the item.

External Obsolescence

When something outside the control of a property makes it less desirable. Also called economic obsolescence.

Functional Obsolescence

When a building is less desirable because of something inherent in the design of the structure.

Gross Income Multiplier

A variation of the GMRM which is used for commercial properties, but uses annual income figures.

Gross Rent Multiplier

A number derived from comparable rental property in an area, which then used to estimate the value of a piece of real estate. The GMRM is only used for one to four unit residential properties.

Land

The actual dirt or soil on the ground. From a legal standpoint, also refers to everything under the ground to the center of the earth, and everything over the land into the air (within limits to allow for air traffic).

Market Price

The price that a piece of real estate sold for in an actual transaction.

Physical Deterioration

Actual wear and tear on something due to age, the elements or other forces.

Plottage

An increase in value by successful assemblage, usually due to a change in use.

Progression

A principle that says the value of a home is helped up by the other homes in an area. (Usually said about the "worst" home in the "best" area.)

Reconciliation

The appraisal process of analyzing the values derived from the different appraisal approaches to arrive at a final value estimate or opinion.

Regression

A principle that says the value of a home is held down by the other homes in an area. (Usually said about the "best" home in the "worst" area.)

Scarcity

A physical characteristic of real property that says there is a limited supply of real estate; the perceived supply of a good or service relative to the demand for the item.

Seller's Market

Situation in the housing market where sellers can choose from a large number of buyers looking for houses in an area.

Square Foot Method

Method for determining the cost of a building that relies on cost manuals (and is sometimes called the cost manuals method).

Substitution

A "rule" that says an informed buyer will not pay more for a home than a comparable substitute.

Supply and Demand

Law of economics that says for all products, goods and services when supply exceeds demand, prices will fall and when demand exceeds supply, prices will rise.

Uniform Residential Appraisal Report

A standard appraisal report form used by lenders and appraisers because it has been developed and approved by secondary mortgage market players Fannie Mae and Freddie Mac.