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