C8 PA Real Estate Practice Flashcards

C8 PA Real Estate Practice Flashcards straight-line methodThe easiest but least precise way to determine depreciation is the straight-line method, also called the economic age-life method. This method assumes depreciation occurs at an even rate over a structure's economic life, the period during which it is expected to remain useful for its original intended purpose. The property's cost is divided by the number of years of its expected economic life to derive the amount of annual depreciation.Sales Price and GIM equationSales Price ÷· Gross Income = Gross Income Multiplier (GIM) competitionthe interaction of supply and demand. Little demand for abundant supply tends to depress value, while great demand for limited supply tends to increase value. A neighborhood or a type of property, for example, in which purchasers see opportunities for profit or high return on an investment, tends to attract other purchasers as well.income approachbased on the present value of the rights to future income. It assumes that the income derived from a property will, to a large extent, control the value of that property. The income approach is used for valuation of income-producing properties such as apartment buildings, office buildings, shopping centers, and the like.gross income multiplier (GIM)A figure which, when multiplied by the annual gross income, will equal the property's market value. The amount of the GIM must be obtained from recent comparable sales since it varies with specific properties and areas functional obsolescencecurable and incurable Curable-outmoded or unacceptable physical or design features that are no longer considered desirable by purchasers but could be replaced or redesigned at a cost that would be offset by the anticipated increase in ultimate value. Outmoded fixtures, such as plumbing, are usually easily replaced. Room function may be redefined at no cost if the basic room layout allows for it. A bedroom adjacent to a kitchen may be converted to a family room.Incurable-currently undesirable physical or design features that could not be easily remedied because the cost of effecting a cure would be greater than its contribution to the value. An office building that cannot be air-conditioned, for example, suffers from incurable functional obsolescence if the cost outweighs its contribution to the value.

regressionIn general, the worth of a better-quality property is adversely affected by the presence of the lesser-quality property. This is known as the principle of regression.Thus, in a neighborhood of modest homes, a structure that is larger, better maintained, or more luxurious would tend to be valued in the same range as the less lavish homes.appraisalan estimate or opinion of value based on supportable evidence. Appraisals are usually required when real property is financed. Mortgage lenders want to know that the value of the collateral is sufficient to support the amount of the loan. Appraisals are also common when property is condemned, taxed, and insured, and when estates are probated. Formal appraisals may be used any time an unbiased, professional opinion of value is helpful, including when buyers and sellers make their decisions.assemblageThe process of merging the two lots under one owner gross rent multiplier (GRM)A figure which, when multiplied by the monthly rental income, will equal the property's market value. The amount of the GRM must be obtained from recent comparable sales since it varies with specific properties and areas appraiserthe impartial third person who prepares the appraisal. An appraiser does not determine value but rather provides an estimate of value. Professional standards of practice require that the appraisal be based on approved professional methodology and reported in certain forms.The appraiser performs a service for a fee that is determined by the amount of time and effort needed to accomplish the task. To protect impartiality, the appraiser does not have an agency relationship with the party for whom the appraisal is performed, nor is the appraiser's compensation based on the value of the property being appraised.broker/appraiserThis person is permitted to appraise only properties valued under $250,000 that are not involved in federally related transactions. This certification was offered to all licensed real estate brokers who applied by September 3, 1998.After this date, any real estate broker who desires certification must meet the qualifications for a certified general or residential appraiser.The appraiser certification act also certifies county assessors who value properties for ad valorem tax purposes in Pennsylvania.anticipationThe principle of anticipation says that value is created by the expectation that certain benefits will be realized in the future. Value can increase or decrease in anticipation of some future benefit or detriment affecting the property. For

example, the value of a house may be affected if there are rumors that an adjacent property may be converted to commercial use in the near future.conformitysays that value is created when the components of the property are in harmony with its surroundings. Maximum value is realized if the use of land conforms to existing

neighborhood standards. In residential areas of single-family houses, for example, buildings should be similar in design, construction, size, and age.square-foot methodThe cost per square foot of a recently built comparable structure is multiplied by the number of square feet (using