TERMS - PT. 2

BV Formula

(BV = Orig. Cost + Exp. - Acc. Depreciation)

Comparative Market Analysis (CMA)

A comparison of the prices of recently sold homes that are similar to a listing seller's home in terms of location, style, and amenities.

Functional Obsolescence

A loss in value due to conditions within the structure which make the building outdated when compared with a new building. (4 bedrooms and 1 bath, insulation, narrow stairway, etc.)

Economic Obsolescence

A loss in value due to factors away from the subject property but adversely affecting the value of the subject property.

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.

Functional Obsolescence

A loss of value to an improvement to real estate arising from functional problems, often caused by age or poor design.

Gross Rent Multiplier (GRM)

A number that is multiplied by a property's gross rent/income to produce an estimate of the property's worth

Assessed Value

A valuation placed upon property by a public authority (officer or a board,) as a basis for TAXATION (levying taxes on a property)

Principle of Substitution

Affirms that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute property, assuming no costly delay is encountered in making the substitution.

CMA

An analysis of the competition in the marketplace that a property will face upon sale attempts.

Appraisal

An estimate of the value of property resulting from an analysis of facts about the property

Reproduction Cost

Cost to duplicate an Asset. The cost of replacing the subject improvement with one that is the EXACT replica, having the same quality of workmanship, design and layout.

Principle of Change

Holds that it is the future, not the past, which is of prime importance in estimating value. Change is largely the result of cause and effect.

Principle of Conformity

Holds that the maximum of value is realized when a reasonable degree of homogeneity of improvements is present. Use conformity is desirable, creating and maintaining higher values.

Physical Deterioration

Impairment of condition. Loss in value brought about by wear and tear, disintegration, use and actions of the elements; termed curable AND incurable

Depreciation

Loss of value of property brought on by age, physical deterioration or function/economic obsolescence

Appraiser

One qualified by education, training and experience who is hired to estimate the value of real and personal property based on experience, judgement, facts and use of formal appraisal processes

Value

PRESENT worth of FUTURE benfits

Principle of Competition

Profits tend to breed competition which can reduce profits. BUT Excess profits can ruin completion

Market Value

The HIGHEST price in terms of money which a property will bring in competitive and open market and under ALL conditions is considered for a fair sale (the buyer and seller acting prudently, knowledgeably, and neither affected by undue pressures)

Highest and Best Use

The Most probable use to which a property is suited that results in its highest value or highest returns to the land (Most Profitable use)

Utility

The capacity to satisfy human needs and desires

Insured Value

The cost of replacing a structure COMPLETELY destroyed by an insured hazard

Replacement Cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.

Replacement Cost

The cost to replace a structure with having utility EQUIVALENT to that being Appraised BUT constructed with modern materials and according to current standards, design and layout.

Book Value

The current value for accounting purposes of an asset expressed as original cost plus capital additions minus accumulated depreciation.

Effective Demand

The desire for possession or ownership backed by financial means to satisfy that need

Principles of Externalities

The influences OUTSIDE of a property can have positive or negative affect on its value

Amortization

The liquidation of a financial obligation on an installment basis; also, recovery over a period of cost OR value

Economic Life

The period over which a property will yield a return on the investment OVER and above the economic or ground rent due to land.

Market Price

The price PAID regardless of pressures, motives or intelligence

Transferability

The relative ease with which ownership rights are transferred from one person to another.

Scarcity

The supply of property in relation to Effective Demand

Principle of Anticipation

Value is created by the expectation of FUTURE benefits

Principle of Contribution

Value of a part is determined by its contribution to the total value of the property rather than by its cost. (max value is acheived when improvements produce the highest net return, commmensurate with the investment)

Supply and Demand

Value of a property will INCREASE if the Supply DECREASES and demand either INCREASES or REMAINS CONSTANT (vice versa)