Property Valuation and Financial Analysis (14%)

capitalization (income) approach

1. Converts income into value 2. A property that can prove to bring in more income will increase the value 3. Most appropriate for a shopping center.

principle of regression

A building's value will decline if the buildings around it have a lower value.

economic obsolescence

A loss in value due to factors outside the subject property, such as changes in competition or surrounding land use. Also referred to as external obsolescence.

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.

assessed value

A valuation placed on a piece of property by a public authority as a basis for levying taxes on that property.

fee appraiser

Also known as a field appraiser. One who is not an employee of a particular lender; an independent agent.

unearned increment

An increase in value of real estate due to no effort on the part of the owner; often due to increase in population.

appraiser

An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

cost (replacement) approach

Appraisal method in which site value is added to the present reproduction or replacement cost of all property improvements, less depreciation, to determine market value.

functional obsolescence

Loss in value due to adverse factors within a structure that affect its marketability, such as its design, layout, or utility.

depreciation

Loss of value due to all causes, but usually considered to include physical deterioration, functional obsolescence, and economic obsolescence.

plottage

Occurs when two or more sites are combined, with the result that the value of the assembled site is worth more than the value of the sum of each of the individual sites.

effective age

The age of a building based on the actual wear and tear and maintenance, or lack of it, that the building has received.

principle of highest and best use

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

narrative report

The longest and most thorough appraisal report, containing a summary of all factual materials, techniques, and appraisal methods used in setting forth the appraiser's conclusion of value.

obsolescence

The loss of value due to property features that are outmoded or less useful.

principle of substitution

The maximum value of a property tends to be set by the cost of purchasing an equally desirable substitute property.

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.

market data (comparison) approach

The process of estimating the value of a property by examining and comparing sales and listings of comparable properties.

principle of contribution

The value of any component of property is determined by how much value the improvement contributes to the value of the whole property.