APPRAISING

real estate terms

market value

price of an asset determined by the seller and the buyer

cost

total amount to produce property (labor + material)

appraisal

process of determining market value of property

insurable value

value of real property for insurance purposes

investment value

value to an investor

assessed value

value for property taxes

liquidation value

value on a forced sale

DUST

demand, utility, scarcity, transferability

demand

purchasing power of buyer

utility

usefulness, ability to satisfy wants and desires

scarcity

increases value due to competition between sellers

transferability

seller must have a good title to transfer

value-in-use

value to a specific user of income property not offering it for sale

forces influencing value

social, economic, government, and environmental

principles of value

anticipation, change, competition, conformity, contribution, increasing/decreasing returns, highest and best use, substitution, supply and demand, regression, and plottage

valuation process

1. define the problem

2. preliminary survey/appraisal plan

3. data collection/analysis

4. highest and best use analysis

5. site valuation

6. 3 approaches to value

7. reconciliation through weighted averaging

3 approaches to value

sales comparison, income, and cost

gross rent multiplier (grm) =

sale price / gross rent

capitalization

net operating income = market value x cap rate

3 methods of reproduction/replacement cost

comparative-unit, unit-in-place, and quantity survey

3 methods of depreciation cost

deterioration, functional obsolescence, and economic obsolescence

non-freehold

possession and use of another’s property

types of non-freeholds

leasehold, tenancy at will, tenancy at sufferance

lease

written contract between lessor and lessee

transfer of lease (3 types)

sublet, assign, and novation

sublet

original tenant temporarily rent out all or part of the property, keeps responsibility of the lease

assign

party transfers rights under a contract to another party

novation

party in lease contract is replaced with a new party

termination of lease (7 types)

performance, surrender of premises by tenant, action of law, destruction, foreclosure, eviction, and constructive eviction

types of lease (9 types)

gross, net, percentage, graduated, index, reappraisal, sublease, ground, and sale-leaseback

gross lease

lessee pays fixed rent, lessor pays ownership expenses

net lease

lessee pays all or some operating expenses + base rent

percentage lease

lessee pays rent of monthly base amount + percent of their gross sales

graduated lease

rent increases periodically based on a schedule, agreed between the landlord and the tenant

index lease

rent is based on a specific economic index

reappraisal lease

increase in rent is based on independent appraisals

sublease

lease between original lessee and sublet tenant

ground lease

lease of land only

sale-leaseback

owner sells property and simultaneously leases it from new owner

right of first refusal

legal agreement that allows someone the right to make the first offer on buying a property

lease option

legal agreement allowing the tenant the right to purchase leased property at a specific time

leasehold

a tenancy with expiration date

tenancy at will

a tenancy without an expiration date

tenancy at sufferance

lease expires but tenant stays without the landlord’s consent

comparative-unit method

total value of recently constructed similar buildings divided by # of square feet

unit-in-place

cost of producing and installing individual main components

quantity survey

quantity and quality of all materials, plus labor, builder’s profit, and cost of permits

reproduction

creates a replica

replacement

creates a property with similar utility, current materials, and design

appreciation/depreciation (straight line method)

new value = original x percentage

anticipation (principle of value)

forecast of expected benefits during ownership and at time of resale

change (principle of value)

real estate values move up/down (ex. business cycles, interest rates, neighborhood cycles)

competition (principle of value)

competition between buyers for properties

conformity (principle of value)

property value is maximized when it is similar to surrounding properties (size, style, age)

contribution (principle of value)

value of property investment = added value + original value

increasing/decreasing returns (principle of value)

over-improvement vs. under-improvement

highest and best use (principle of value)

property will be improved to its optimal use in a competitive market

substitution (principle of value)

a property with similar utility and a lower price will attract more buyers

supply and demand (principle of value)

supply > demand = prices-, supply < demand = prices+

regression (principle of value)

property value is reduced by surrounding properties having less value

plottage (principle of value)

assemblage of one or more adjoining plots, creating a larger plot