CA Principles Chapter 9 Real Estate Appraisal

gross multiplier

A figure that,when multiplied by the gross income of a property, produces an estimate of value of the property.

economic obsolescence

A loss in value caused by factors away from the subject property but adversely affecting the value of the subject property.

appraisal

An estimate and opinion of value; a conclusion resulting from the analysis of facts.

appreciation

An increase in value that can result from inflation or from the interaction of supply and demand forces.

physical deterioration

Impairment of condition. Loss in value brought about by wear and tear, disintegration, use, and actions of the elements.

Curable Depreciation

Items of physical deterioration and functional obsolescence that are customarily repaired or replaced by a prudent property owner.

income approach

One of the three methods in the appraisal process; an analysis in which the estimated gross income from the subject residence is used as a basis for estimating value along with gross rent multipliers derived.

incurable depreciation

When the cost of the repair or remodel exceeds the value added to the property.

functional obsolescence

A loss of value caused by adverse factors from within the structure that affect the utility of the structure.

depreciation

Loss of value in real property brought about by age, physical deterioration, or functional or economic obsolescence. Broadly, a loss in value from any cause.

cost approach

One of three methods in the appraisal process. An analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting therefrom the estimated accrued depreciation, then adding the market value of the land.

market approach

The price at which a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure. As defined by the courts, the highest price estimated in terms of money that a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser with knowledge of the property's use and capabilities for use.

market value

The price at which a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure. As defined by the courts, the highest price estimated in terms of money that a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser with knowledge of the property's use and capabilities for use.

capitalization rate

The rate of interest that is considered a reasonable return on the investment and used in the process of determining value based on net income. It may also be described as the yield rate that is necessary to attract the money of the average investor to a particular kind of investment. This amortization factor can be determined in various ways; for example, by the straight-line depreciation method. (To explore this subject in greater depth, refer to current real estate appraisal texts.)

correlation (reconciliation)

The result of bringing the indicated values developed by the three appraisal approaches into mutual relationship with each other.

value in use (utility value)

refers to the value of a particular propertytoaparticularowneroruserofrealestate.Thevalueofpropertytoaparticularownermay beemotionalaswellaseconomic;thus, valueinuseisalsoknownassubjectivevalue.

principle of substitution

states that a buyer should not pay more for a home than the price it takes to acquire a comparable home. Therefore, the market approach is also known as the comparison sales approach to value.