Chapter 16 Real Estate Appraisal
Automated valuation model (AVM)
A computer generated estimate of residential property value using recent sales and computer software models.
Depreciation
A loss in building value from all causes, such as physical deterioration, or functional or external obsolescence.
Principal of regression
A principal in appraising that a superior property will decrease in value when its associated with inferior properties.
Principal of progression
A principal in appraising that an inferior property will increase in value when its in a neighborhood with superior properties and an area with high demand.
Comparative Market Analysis (CMA)
A report provided to a real estate agents customers that provides information helpful in establishing a list price for sellers or offering price for buyers. It is not an appraisal.
Income Approach
An approach used to appraise income producing property. In applying the approach, the appraiser estimates the annual net operating income that the property likely will produce.
Cost depreciation approach
An approach used to appraise real property that is often applied to estimate the market value of special purpose buildings. The approach involves estimating the reproduction cost of the improvements, subtracting all elements of accrued depreciation, and adding to that result the value of the land as estimated separately.
Appraisal
An estimate of the value of a specific real estate property at a specific date.
Over Improvement
An improvement that is not the highest and best use for the site on which it is placed by reason of excess size or cost. Super adequate.
Federally-related transaction
Any real estate related financial transaction in which a federal financial institution regulatory agency or Resolution Trust Corporation engages in, contracts for, or regulates and that requires the services of an appraiser.
Sales Comparison Approach
Appraisal method for estimating cost based on the principal of substitution. the process of using comparable properties to determine market value.
Curable
Depreciation is curable when the cost to repair equals the added value.
Incurable
Depreciation is incurable when the cost to repair exceeds the added value.
Special-Purpose Properties
Properties that do not fit other zoning categories (eg. schools, libraries, courthouse, parks and government properties.
Price
The amount in the transaction of the property between the buyer and seller.
Plottage Value
The amount of the increase in value from assemblage
Value
The amount that the property is worth.
Cost
The amount to create a property or good
Assemblage
The combining of two or more adjoining parcels of real estate under one ownership.
Highest and Best Use
The existing or alternate use of improved property is its highest and best improved property is its highest and best use.
Uniform Standards of Professional Appraisal Practices
The generally accepted standard for professional appraisal practice in North America.
Market Value
The most probable price in terms of money that a property should sell for in a competitive, open market.
Economic Life
The period of time an income producing property yields a competitive turn on investment.
Principal of Substitution
The principal that an informed buyer will not pay no more for a property than the cost of acquiring another equally desirable property with the same or equal utility. If two similar houses are for sale, the lowest price house will generally sell first.
Subject properties
The property being appraised
Replacement cost
Used in the cost depreciation approach. The current cost of creating a building of equal utility as the building being appraised, but not necessarily with identical materials or in exact physical detail.
Reproduction Cost
Used in the cost depreciation approach. The current cost of creating a duplicate or replica of the building appraised by using identical materials and design.
Gross rent Multiplier (GRM)
Used in the gross income method of appraising income-producing property, derived using the sales price and monthly rents of comparable properties to estimate the value of subject property.
Reconciliation
What an appraiser does by weighing the estimates of value that were derived from sales comparison, cost-depreciation, and income approaches to arrive at a final estimate of market value.
Valuation
determination of a monetary value