Real Estate Law: Chapter 18 Flashcards

Real Estate Law: Chapter 18 Flashcards

Uniform Standards of Professional Appraisal Practice

(USPAP)

A set of standards that details information required of an appraisal of residential property. The Uniform Residential Appraisal Report is required by many government agencies.AnticipationThe appraisal principle that holds that value can increase or decrease based on the expectations of some future benefit or detriment produced by the property.Cost ApproachThe process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.AssemblageThe combining of two or more adjoining lots into one larger tract to increase their total value.Replacement CostThe 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.Broker's Price OpinionAN opinion of real estate value commissioned by a bank or attorney and provided by a broker.Highest and Best UseThe possible use of a property that would produce the greatest net income an, thereby, develop the highest value.Net Operating Income (NOI)The income projected for an income-producing property after deducting losses for vacancy and collection and operating expenses.ConformityThe appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value.Reproduction CostThe construction cost at current prices of an exact duplicate of the subject property.Sales Comparison ApproachThe process of estimating the value of a property by examining and comparing actual sales of comparable properties.Law of Diminishing ReturnsLaw that applies when at the point where additional improvements do not increase income or value.ProgressionAn appraisal principle that states that, between dissimilar properties, the value of the lessor-quality property is favorably affected by the presence of the better-quality property.Supply and DemandThe appraisal principle that follows the interrelationship of the supply of and demand for real estate. Because appraising is based on economic concepts, this principle recognizes that real property is subject to the influences of

the marketplace as with any other commodity.Economic LifeThe number of years during which an improvement will add value to the land.

CompetitionThe appraisal principle that states excess profits generate competition.Gross Income Multiplier (GIM)A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property's value.AppraisalAn estimate of the quantity, quality, or value of something.The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.ValueThe power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities.Income ApproachThe process of estimating the value of an income-producing property through capitalization of the annual net income expected to be produced by the property during its remaining useful life.SubstitutionAn appraisal principle that states 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.RegressionAn appraisal principle that states that, between dissimilar properties, the value of the better-quality property is affected adversely by the presence of the lesser-quality property.External ObsolescenceIncurable depreciation caused by factors not on the subject property, such as environmental, social, or economic factors.Market Data ApproachAlso known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties.ReconciliationThe final step in the appraisal process, in which the appraiser combines the estimated of value received from the sales comparison, cost, and income approaches to arrive at a final estimate of market value for the subject property.Gross Rent Multiplier (GRM)The figure used as a multiplier of the gross monthly income of a property to produce an estimate of the property's value.Depreciation1. In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence, and external obsolescence.Functional ObsolescenceA loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.

Physical DeteriorationA 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.Sales PriceThe amount of money paid to a seller for a product bought.Accrued DepreciationLoss in value resulting from the property's physical deterioration, external depreciation (decrease in price), and functional obsolescence.Market ValueThe most probable price property would bring in an arm's-length transaction under normal conditions on the open market.ContributionThe appraisal principle that states that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value.PlottageThe increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.Capitalization RateThe rate of return a property will produce on the owner's investment.Competitive Market Analysis (CMA)A comparison of the prices of recently sold homes that are similar to a listing seller's home in terms of location, style, and amenities.Law of Increasing ReturnsLaw that applies as long as money being spent on improvements produces an increase in income or value.