Examples of specific changes may be adverse site

Real Estate Principles 2: Chapter One Real Estate Appraisal Key

Concepts Flashcards Cost ApproachThe cost approach to the market value of the property considers how much a new structure of this size and type would currently cost build.The cost approach is commonly used for unique properties for which there is little market activity.The appraiser applies current industry and market price estimates for the underlying land, building supplies and construction costs.Principle of Change+ Changes to a property can be specific or external.Examples of specific changes may be adverse site conditions, zoning changes, or damage to the improvements.+ Changes in the broader market affect the value of a given parcel of land.Effective AgeEffective Age Highest and Best UseThe possible use of land that would produce the greatest returns, and thereby develop the highest land value. The optimum use of a site as used in appraisal.Income ApproachThe process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.Depreciation(1) The reduction in value of property from causes such as

deterioration or obsolescence.Types:+ Physical

Deterioration (Loss in a property's value due to daily wear and tear).+ Functional Obsolescence (The loss in desirability of the style, layout, or function of an element of a property over time).+ External Obsolescence (The loss in value of a property caused by factors outside of the property itself). Such influences include the oversupply and consequent drop in demand for a particular proximity to undesirable land uses, such as highways or factories.Sometimes referred to as environmental or economic obsolescence.(2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property. See also, cost recovery.AppraisalAn estimate of the quantity, quality or value of something.The process through which conclusions of property values

are obtained: also refers to the report that sets forth the

process of estimation and conclusion of value.The appraiser's estimate of the age of the house based upon its ongoing maintenance and upgrades.Ad Valorem (According to Value)

Principle of SubstitutionThe value of a commodity is influenced by the cost of acquiring a substitute or comparable item. Buyers, acting rationally, will pay no more for one property than they would for an equally desirable, comparable property.Market ValueThe highest price a ready, willing and able buyer would pay and the lowest price a ready, willing and able seller would accept, neither being under any pressure to act.Principle of ContributionSuggests that the value of a property is equal to the sum of the contributory value of each of its component parts. Most important practical application of the concept is that cost does not equal value.Principle of RegressionAn appraisal principle holding that the presence of lower-priced properties in the area will cause a decline in the value of the subject property. The presence of lower-priced properties is "pulling" down the value of the higher-priced property.The opposite occurs in the principle of progression where the value of a subject property is increased by the value of surrounding properties.Chronological AgeThe actual age of the property in years.Principle of ConformityAn appraisal principle holding that maximum value is realized when a reasonable degree of homogeneity (sameness) exists in a neighborhood.Assessed ValueThe assessed value for tax purposes is determined by the taxing authority, and may be well above or below the value based upon a real appraisal. Assessed value should never be used as a reliable estimate of market value.Loan-to-Value RatioThe percentage of value or sales price that a lender is willing to finance. When calculating the loan-to-value ratio, the lender will use the sales price or appraised value, whichever is lower.Principle of AnticipationStates that the purchase price is affected by the expectation of future appeal and benefits.Sales Comparison ApproachThe process of estimating the value of a property by examining and comparing actual sales of comparable properties.