1.15 Appraisal Concepts and Principles of Value - Vocabulary Flashcards

Vocabulary flashcards covering key appraisal concepts and principles from the video notes.

Supply and Demand

Economic forces where when demand exceeds supply scarcity exists and values rise; when supply exceeds demand surplus exists and values decline; equilibrium keeps values stable.

Utility

A property's use in the marketplace contributes to its demand.

Transferability

How easily title or real estate rights can be transferred affects value.

Anticipation

The benefits a buyer expects to derive over a holding period influence what they are willing to pay.

Substitution

A buyer will not pay more for a property than for an equally desirable substitute property.

Contribution

The value added by an improvement equals the change in market value caused by that improvement.

Market Conditions

Market conditions affect the benefits that can arise from a property.

Highest and Best Use

Property achieves maximum value when used in the legally permissible, physically possible, financially feasible, and maximally productive use.

Conformity

Maximal value is attained when a property’s form and use conform with surrounding properties.

Progression

Property value is influenced positively by values of neighboring properties as they rise.

Regression

Property value is influenced negatively by values of neighboring properties as they fall.

Assemblage

Conjoining adjacent properties can create a combined value greater than the sum of the parts; the excess is plottage value.

Subdivision

Dividing a single property into smaller properties can result in a higher total value.

Market Value

An estimate of the price at which a property will sell at a particular time; used in appraisals and brokers’ estimates.

Arm's Length

Transactions where parties are unrelated and act independently without pressure.

Marketable Title

Title free from hidden influences or defects that would impair transfer.

Insured Value

The face amount a casualty or hazard insurance policy will pay if the property is rendered unusable.

Reproduction Value

Value based on the cost of constructing an exact duplicate of the subject’s improvements using current costs.

Replacement Value

Value based on the cost of constructing a functional equivalent of the subject’s improvements using current costs.

Salvage Value

Nominal value at end of economic life; also an estimated price if the structure is dismantled and moved.

Assessed Value

Value estimated by a taxing authority as the basis for ad valorem taxation.

Depreciated Value

Value established by subtracting accumulated depreciation from the purchase price.

Book Value

Value carried on the owner’s accounts; typically purchase price plus improvements minus depreciation.

Investment Value

Value of an income property as indicated by the capitalized value of the cash flow it generates.

Market Value Requirements

Conditions assumed in market value: willing buyer and seller, reasonable market exposure, arm’s-length, no pressure, cash transaction.

Cost Approach

An appraisal method using land value plus replacement or reproduction cost minus depreciation to estimate value.

Depreciation

Loss of value from deterioration or obsolescence.

Deterioration

Wear and tear from use and aging.

Functional Obsolescence

Outdated features or design; can be curable or incurable.

Economic Obsolescence

Loss of value due to external, adverse changes; typically incurable.

Curability

Curable means cost to cure is less than the resulting increase in value; incurable means cost to cure exceeds the value contributed.

Income Approach

Value is based on the expected future income stream and the principle of substitution.

Potential Gross Income

Total potential income before vacancy and credit losses.

Effective Gross Income

Potential gross income minus vacancy and credit losses.

Net Operating Income (NOI)

Effective gross income minus operating expenses.

Capitalization Rate

Rate used to convert NOI into value; computed as NOI divided by value (NOI ÷ cap rate).

Gross Rent Multiplier (GRM)

A multiplier applied to gross rent to estimate value, derived from market data; a simplified approach.

Comparative Market Analysis (CMA)

Process of identifying and comparing comparable properties to estimate value.

FIRREA

Financial Institutions Reform, Recovery and Enforcement Act of 1989; regulates appraisals for federally related transactions; requires competent, state-certified appraisers.

USPAP

Uniform Standards of Professional Appraisal Practice; sets competency standards, reporting requirements, disclosures, and due diligence for appraisals.