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Chapter 3: Property valuation and Financial analysis
Terms in this set (30)
An Individual's opinion of a property's value on a specific date, documented in an appraisal report.
An agent's opinion of a property's fair market value based on comparable sales.
Broker Price Opinion (BPO)
An appraisal method used by an appraiser to arrive at a property's value based on the present worth of a property's future net operating income.
The annual rate of return on investment produced by the operations of an income property or sought by an investor on the investment of capital. The cap rate is calculated by dividing the net operating income by the price asked or offered for income property.
Capitalization Rate (Cap Rate)
Sales of properties recently sold which have similar characteristics as the subject property being evaluated and are used for analysis in the appraisal of the subject property.
The cost approach calculate the current construction cost to replace the improvements. From the replacement cost, appraisers subtract their estimate of the accrued depreciation of the existing improvements due to obsolescence and deterioration to get the current replacement value of the improvements.
Cost Approach: Cost of Replacement or Reproduction of Real Estate: Used for special use properties such as churches, schools, and public buildings.
Loss of property value brought about by age, physical deterioration or functional or economic obsolescence. the term used to account for the annual tax-free return of capital invested in improvements over the life of the improvements, as a reduction in the property's cost basis.
The period of time over which a property will yield a return on capital invested to own it.
A loss of value of a property due to external factors and not the condition of the property itself.
The physical age of a property based on the condition of the structure, distinct from its chronological age.
Factors that must be present for real estate to have value: demand, utility, scarcity and transferability.
Element of Value
The branch of fiduciary science, idealism, justness, and fairness, which treats of the duties which a member of a profession or craft owes to the public, client or partner, and to professional brethren or members. Accepted standards of right and wrong, fiduciary conduct, behavior or duty.
The price a reasonable, unpressured buyer would pay for property on the open market.
Fair Market Value (FMV)
The consideration of the durability, quantity and quality of income and expenses generated and incurred by an income-producing property.
A loss due to adverse factors within the structure which affect the utility of the structure, and thus its value and marketability.
A factor which, when multiplied by the gross income of a property, produces an estimate of the property's value.
Gross Rent Multiplier (GRM)
An appraisal phrase addressing the use of a property which is most likely to produce the greatest net return on the land and/or buildings over a given period of time.
Highest and Best Use
One of three methods of the appraisal process applied to income producing property to develop the appraiser's opinion of value.
An aspect of the principle of change, recognizing the effect of physical, economic, government and social changes on real estate value.
Influence on Value
A ratio stating the outstanding mortgage balance as a percentage of the mortgaged property's fair market value. The degree of leverage.
Loan-to-Value Ratio (LTV)
An appraisal method used by an appraiser to arrive at a property's value by a comparison of recent sales prices of similar properties, adjusted for differences in the properties.
A summary of all factual materials, techniques and appraisal methods used by the appraiser in establishing the value of a property. This is the most thorough type of appraisal report.
The cost of an action that is forgone when choosing to take an alternative action, usually a consideration when making one investment over another.
The total number of years a building is presumed to potentially exist in a productive capacity.
The application of several appraisal principles to arrive at a final value. The basic principle is substitution.
Principles of Value
The final step in the appraisal process. Placing weight on the alternative value conclusions, to arrive at a final value decision.
The cost to replace a structure with one having utility equivalent to that being appraised, but constructed with modern materials and according to current standards, design and layout.
A measure of annual income or profits on sale in relation to capital invested.
Return on Investment (ROI)
The appraised valuation of the ground (site) separate from any structure (improvement) that may be on the site.
The present worth stated in dollars of the future benefits arising out of ownership of a property.
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