Purvis Real Estate Valuations Exam #1
Three Appraisal Approaches
1. cost approach 2. direct sales comparison approach 3. income capitalization approach
feasibility study
A study of the cost-benefit relationship of an economic endeavor.
bundle of rights
An ownership concept describing all the legal rights that attach to the ownership of real property.
economic base
strength of this economic base is the driving force behind a community's growth
three approaches to value
(1) The Sales Comparison Approach, (2) The Cost Approach, (3) The Income capitalization approach
neighborhood life cycle
1. Growth 2. Stability 3. Decline 4. Revitalization
appraisal
1. act of process of developing an opinion of value 2. pertaining to appraising and related functions such as appraisal practice or services
HBU tests
1. is it physically possible 2. legally permissible 3. financially feasible 4. maximally productive
ground lease
A lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease. Such leases are usually long-term net leases; the tenant's rights and obligations continue until the lease expires or is terminated through default.
investment analysis
A study that reflects the relationship between acquisition price and anticipated future benefits of a real estate investment
Leasehold Estate
A tenant's right to occupy real estate during the term of a lease, generally considered to be a personal property interest.
fee simple interest
Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.
fee simple estate
Absolute ownership with all the rights associated with ownership of real property
cost benefit study
Analysis of the cost of creating an improvement versus the benefits that will be created by the improvement, including non-monetary issues
land utilization study
Analysis of the potential uses of a parcel of land and determination of the highest and best use of that parcel
the principle of supply and demand
In appraising, a valuation principle stating that market value is affected by the intersection of supply and demand forces in the market as of the appraisal date.
nonresidential income property
Includes hotels and commercial, industrial, and other special-purpose properties.
equity interest
Interest of the owner after all claims and lines are satisfied
lease fee estate
Ownership interest in real estate held by the tenant during the term of the lease
eminent domain
Power of a government to take private property for public use.
real property
The interests, benefits, and rights inherent in real estate ownership.
Leased fee interest
The ownership interest held by the lessor, which includes the right to the contract rent specified in the lease plus the reversionary right when the lease expires.
Highest and Best Use
The possible use of a property that would produce the greatest net income and thereby develop the highest value.
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 sales of comparable properties.
Income Capitalization Approach
Used when valuing income producing property, value is determined by Net Operating Income (NOI.) Potential Gross Income - Vacancy and Collection Losses = Effective Gross Income Effective Gross Income - Operating Expenses = NOI
mortgage interest
a fee charged by a lender on money borrowed on the loan to purchase a home
principle of change
a property and its environment are always in transition and are affected by economic and social forces that are constantly at work
marketability study
a real estate analysis that addresses the ability of a property to be absorbed, sold, or leased under current and anticipated market conditions
market value
a value made as of a specific date that represents the most probable price that a seller could expect to command for a specific interest in real estate assuming a typical, knowledge investor, a reasonable marketing time, and sale made in cash
environment impact study
an analysis of the impact of a proposed land use on its environment, including the direct and indirect effects of the project during all phases of use and their long run implications
neighborhood
an area comprising a group of complementary land uses, in which changes would affect all of the properties in the area
opportuinity cost
associated with sacrificing opportunities not taking
mortgage loan value
benchmark on which lenders base mortgage investments in real estate
economic trends
classified into international, national, regional, and local
market study
demographic, economic, political, and cultural trends and conditions that affect the current supply and demand for a particular property type
cost
dollar amount needed on a specific date to replace improvements that are part of an income-producing property
primary data
gathered by the appraiser and are not available in published sources
physical factors
geography, environment, community size, industrial development, soil conditions, climate, natural resources
environmental controls
governmental standards to control adverse environmental conditions
office space
high rise, low rise, single tenant, and medical space
special-use property
hospital, nursing homes, marinas, shipping facilities, and power plants
Personal Property
identifiable, portable, and tangible objects that are considered by the general public as being "personal"; all property that is not classified as real estate
real estate
identified parcel or tract of land, including improvements
nonrealty interests
include personal property and intangible property such as business value and contractual agreements
nonreality interest
include personal property, and intangible items such as business value and contractual arrangements
condemnation
independent appraisals are prepared to estimate the loss in value a property owner suffers by the taking of property
zoning
legal mechanism that enables a local government to regulate development of privately owned property
industrial property
manufacturing, warehouses, lofts, garage space, distribution, and R&D
Secondary Mortgage Market
market for existing financial claims
real estate market characteristics
no organized market, availability of market information, infrequent trades of property, immobility of real estate, each parcel is unique, segmented markets
secondary data
obtained from published sources and have not been collected by the appraiser
market price
price actually paid for an income-producing property
appraisal principles
principles of anticipation, change, supply and demand, substitution, balance, conformity, contribution, opportunity cost, utility
value in use
representing the value of an income producing property to its current user
the principle of substitution
states that a knowledgeable consumer will pay no more for a property than the cost of acquiring an equally desirable alternative property.
the principle of contribution
states that the value of a particular component is measured by the marginal increase in value attributed to its existence
social factors
status, attitudes, and behavior of the inhabitants of an area, all of which are generally qualitative rather than quantitative in nature
utility
the ability of a good or service to satisfy a human need
Financing Premium
the additional price for a buyer to assume a loan
Neighborhood Analysis
the area in which shifts in the general economic or the demographic trends influence the performance of a subject property
effective date
the date for which the value is being estimated
Primary Mortgage Market
the initial source of capital received by a user to fund a project
conformity
the relationship between a property and its surrounding
contract rent
the rent specified in the lease contract
going concern
the total value of a business enterprise
Going Concern Value
the total value of a property, including both real property and intangible personal property (reputation from management and marketing) and the enhancement to value resulting from an operating business
investment value
the value of an income-producing property to a specific investor
"as is" value
the value of what is currently in place
Business Enterprise Value
the value resulting from business organization, including management skills, the assembled workforce, working capital, and legal rights that have been assembled to make the business a viable and valuable entity in its competitive market
purpose of a real estate appraisal
to estimate the value of an ownership interest in real estate and any related nonreality interests
Residential Income Property
used as a residential dwelling for one more individuals
Principle of Anticipation
value is created by the expectation of future benefits
the principle of balance
value is maximized when contrasting or opposing market forces are in a state equilibrium
prospective value
value when the project is complete but prior to lease-up of the tenant space