Unit 4 - Principles of Real Estate II set Flashcards

Unit 4 - Principles of Real Estate II (set 2 of 3) Flashcards demandDemand is the desire and ability to acquire goods and services through purchase or lease.functional utilityFunctional utility is the combined factors of usefulness with desirability.principle of substitutionThe principle of substitution is the basis of the appraisal process. Explained simply, value is set by the cost of getting an equally desirable substitute. An owner cannot expect to sell for more than someone would ordinarily pay for a similar property, under similar conditions.Scope of WorkUnder the scope of work, the appraiser identifies the problem to be solved, evaluates the assignment, makes the scope of work decisions, and discloses that scope of work in the report.principle of anticipationThe principle of anticipation expresses that value is created by the expectation of future benefits. An appraiser estimates the present worth of future benefits when he or she assigns a value based on anticipated returns.utilityUtility is the ability of a property to satisfy a need or desire, such as shelter, income, or amenities.principle of contributionThe principle of contribution is the worth of an improvement as well as what it adds to the entire property's market value, regardless of the actual cost of the improvement.At the end of an appraisal, an appraiser must be prepared to answer these two questions.

• What is the highest and best use of the

property?AND-What is this use worth?Political Forces that Influence ValueVarious government controls that influence the value of property must be considered in the development of an analysis for the determination of the value. Political factors and government controls affect real estate in a number ofways.principle of supply and demandThe principle of supply and demand is almost universally recognized as being the first step in how market prices are determined.What are the 4 things included in the Scope of Work?Included in the Scope of Work-Property identification-Property inspection-Type and Extent of data researched-Type and extent of analysis applied to solve the appraisal problem D-U-S-TFour Elements of ValueDemandUtilityScarcityTransferability principle of regressionThe opposite of progression, the principle of regression states that the value of a superior property will be worth less because of the presence of lower-valued properties

nearby.absorption rateThe absorption rate is the rate at which a type of property is either bought or leased (absorbed) by the market.

interim useInterim use is a short-term and temporary use of a property until it is ready for a more productive highest and best use.Elements to Create Value (there are four) There are four elements of market value, all of which must be present for a property to have market value. They are demand, utility, scarcity, and transferability.principle of balanceThe principle of balance states that real estate value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.neighborhood life cycleAll property in a neighborhood goes through four distinct

changes called a neighborhood life cycle: (1) growth

(development), (2) maturity (stability), (3) old age (decline), and (4) revitalization (renaissance).principle of progressionThe principle of progression states that the value of an inferior property will be worth more because of the presence of greater-valued propertiesnearby.principle of conformityThe principle of conformity states that the more that structures are in harmony with one another, the more valuable each of those structures.The 6 Steps in the Appraisal Process-State the problem-Determine the scope of work-Gather, verify, and analyze the data (general and site specific)-Decide on the appraisal approach to be used-Reconcile or correlate the data for final value estimate-Report the appraisal finding improvementAn improvement is a valuable addition made to property to enhance value or extend useful remaining life.scarcityScarcity refers to the availability of a commodity in the marketplace. An oversupply diminishes value, whereas an undersupply (or increased demand) increases value.Economic Forces that Influence ValueThe economic factors that affect real estate values include employment expansion or layoffs, opening or closing of a major employer (military bases, aerospace and electronics firms, dot.coms), availability or absence of mortgage money, and the discovery or depletion of natural resources.supplySupply refers to the total amount of a given type of property for sale or lease, at various prices, at any given point in time.principle of highest and best useThe principle of highest and best use is based on the reasonable use of real property at the time of the appraisal, which is most likely to produce thegreatest net return to the land and/or the building over a given period of time.transferabilityTransferability means that title to theproperty is unclouded and marketable.Physical Forces that Influence Valuenatural or man made Social Forces that Influence ValuePopulation characteristics (demographics) are the primary social factors that affect value. These include population

trends, family characteristics, and attitudes of the people.As the population increases (decreases) in an area, there is a corresponding increase (decrease) in the needs of that population.