Real estate unit 16

Appraisal

Developing and communicating an opinion of a property’s value based on supportable evidence and approved methods as of a certain date.

Assemblage

The combining of two or more adjoining properties into one tract.

Automated Valuation Model (AVM)

A date analysis complied from a computer database of closed sales used by lenders when an appraisal is not wanted.

Cost

The amount to produce or acquire something.

Cost approach

A method for estimating the market value of a property based on the cost to buy the site and to construct a new building on the sire, less depreciation.

Curable

cost to correct deterioration to a property is not more than the increase in value the repair will bring to the property

Depreciation

decline or decrease in value

economic life

The period of time a property may be expected to be profitable or productive; useful life.

Effective age

the age of a property based on its current condition, rather than its actual age.

effective gross income (EGI)

The resulting amount when vacancy and collection losses are substracted from potential gross income.

Federally Related Transaction

Sale transaction ultimately involves a federal agency in either the primary or secondary mortgage market. FIRREA, state-certified or state-licensed appraiser must be used for certain loans in federally related transactions.

gross-income multiplier (GIM)

estimate of value for an investment property calculated by dividing the sale price by gross annual rental income

gross-rent multiplier (GRM)

ratio of the sales price for an investment property to its before-expenses rental income

Highest and Best Use

appraisal principal that provides a property must be valued according to its maximum possible productivity

Income Approach

appraisal methodology that estimates the value of a property based on the income it generates

Incurable

deterioration to a property that cannot be remedied cost-effectively because the cost to repair exceeds the increase in value the repair will bring

Investment value

The worth of a property to a particular investor is based on the investor’s desired rate of return, risk, and tolerance.

Market value

the estimated amount a property will sell for considering normal market and transaction conditions

net operating income (NOI)

The resulting amount when all operating expenses are substracted from effective gross income.

over-improvement

an improvement to property that is excessive compared to similar properties

plottage

the increase in value resulting from joining two or more parcels of property together

Potential gross income (PGI)

The total annual income a property would produce with 100% occupancy and no collection or vacancy losses.

Price

Amount paid for something

Principle of substitution

appraisal principle that states buyers are unlikely to pay more for a property than the cost of acquiring a similar (substitute) property

Progression

appraisal principal that states properties in the lower range of values for a given area are positively impacted by the presence of higher-end properties nearby

Reconciliation

part of the appraisal process where the appraiser considers the various approaches to estimating value and reaches a final estimate of value based on the most appropriate appraisal approach for the subject property

regression

appraisal principle that states properties in the higher range of values for a given area are negatively impacted by the presence of less expensive properties in the local area

replacement cost

the estimated cost to reconstruct a similar property at current market prices

reproducing cost

amount required to duplicate the property exactly.

sales comparison approach

appraisal method that estimates value based on sales and market data for similar properties in the local area

subject property

property being appraised

Uniform Standards of Professional Appraisal Practive (USPAP)

set of professional and ethical rules applied by registered, licensed and certified appraisers

Vacancy and collection losses

A deduction from potential gross income for:

1. current or expected future space not rented as a result of tenant turnover

2. Loss form uncollected rent due from delinquent tenants

value

The worth of something.