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