Unit 2: Real Estate Appraisal

Appraisal

An estimate of quantity, quality, or value of something. The process through which conclusions of property value are obtained; also refers to the report sets forth the process of estimation and conclusion of value.

Capitalization Rate

The rate of return a property will produce on the owner’s investment.

Comparative Market Analysis (CMA)

A comparison of the prices of recently sold homes that are similar to the subject home in terms of location, style, and amenities. Compiled by a broker or sales agent to assist a seller in determining a listing price.

Cost Approach

An estimate value based on current construction cost, less depreciation, plus land value. Contrast with income approach to value and the sales comparison approach.

Depreciation

1. In appraisal, a loss of value in property due to any cause, including physical deterioration obsolescence, and external obsolescence

Economic Life

The period of time during which a structure may reasonably be expected to perform the function for which it was designed or intended

External Obsolescene

Reduction in property’s value caused by factors outside the subject property, such as social or environmental factors; also called economic or locational obsolescence

Functional Obsolescence

A loss of value improved real property due to inadequate, outmoded, or inappropriate improvements.

Gross Income Multiplier

The ratio used to convert annual income into market value in appraising industrial and commercial.

Gross Rent Multiplier

A figure used as a multiplier of the gross monthly rental income of a property to produce an estimate of the property’s value.

Highest and best use

That possible use of land that would produce the greatest return and thereby develop the highest land value. The optimum use of a site, as used in appraisal

Income Approach

The process of estimating the value of an income- producing property by capitalization of the annua net income expected to be produced by the property during its remaining useful life.

Physical deterioration

A reduction in a property’s value resulting from a decline in physical condition; can be caused by action of the elements or by ordinary wear and tear.

Plottage value

The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.

Reconciliation

The final step in the appraisal process, in which the appraiser weighs the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final estimate of market value for the subject property

Replacement Cost

The construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original

Reproduction Cost

The construction cost at current prices of an exact duplicate of the subject property.

Sales comparison approach

The process of estimating the value of a property by examining and comparing actual sales of comparable properties

Substitution

An appraisal principle stating that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution.

Value

The amount of goods or services considered to be a fair and suitable equivalent for something else.