Chapter 18

depreciation

(1) in appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence and external obsolescence. (2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.

competitive market analysis (CMA)

A comparison of the prices of recent sold homes that are similar to a listing seller's home in terms of location, style and amenities.

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.

functional obsolescence

A loss of value to improvement to real estate arising from functional problems, often caused by age or poor design.

physical deterioration

A 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.

Uniform Standards of Professional Appraisal Practice (USPAP)

A set of standards that details information required of an appraisal of residential property. The Uniform Standards of Professional Appraisal Report is required by many government agencies.

market data approach

Also known as the sales comparison approach. An estimate of value obtained by comparing property being appraised with recently sold comparable properties.

progression

An appraisal principle that states that between dissimilar properties the value of the lesser quality property is favorably affected by the presence of a the better quality property.

regression

An 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.

appraisal

An 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.

broker's price opinion

An opinion of real estate value commissioned by a bank or attorney and provided by a broker.

Accrued depreciation

Loss in value resulting from the property's physical deterioration, ‎external depreciation (decrease in price), and functional obsolescence. ‎

sales price

The amount of money paid to a seller for a product bought.

competition

The appraisal principle hat states that excess profits generate competition.

change

The appraisal principle that holds that no physical or economic condition remains constant.

conformity

The appraisal principle that holds that the greater the similarity among properties in an an area, the better they hold their value.

anticipation

The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefits or detriment produced by the property.

contribution

The 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 is absence detracts from that value.

assemblage

The combining of two or more adjoining lots into one larger tract to increase their total value.

replacement cost new

The 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.

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.

reconciliation

The final step in he appraisal process in which the appraiser combines the estimates of value received from the sales comparison, cost, and income approaches to arrive at a final estimate of market value for the subject property.

net operating income (NOI)

The income projected for an income-producking property after deducting losses for vacancy and collection and operating expenses.

plottage

The increase in value or utility resulting from the consolidation (assemblage) of two or more adjacent lots into one larger lot.

market value

The most probable price property would bring in an arm's length transaction under normal conditions on the open market.

economic life

The number of years during which an improvement will add value to the land.

value

The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities.

cost approach

The 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.

sales comparison approach

The process of estimating the value of a property by examining and comparing actual sals of comparable properties.

income approach

The process of estimating the value of an income-producing property though capitalization of the annual net income expected to be produced by the property during its remaining useful life.

capitalization rate

The rate of return a property will produce on the owner's investment.

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substitution

an 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.

external obsolescence

incurable depreciation caused by factors not on the subject property, such as environmental, social, or economic factors.

law of increasing returns

law that applies as long as money being spent on improvements produces an increase in income or value.

law of diminishing returns

law that applies when at the point where additional improvements do not increase income or value.

supply and demand

the appraisal principle that follows the interrelationship of the supply of and demand for real estate. Because appraising is based on economic concepts, this principle recognized that real property is subject to the influences of the marketplace as with any other commodity.

reproduction cost

the construction cost at current prices of an exact duplicate of the subject property.

highest and best use

the possible use of a property that would produce the greatest net income and, thereby, develop the highest value.