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Basic Appraisal Principles - Key Terms
Hondros Learning Basic Appraisal Principles 1st Edition
161
Real Estate & Planning
Professional
11/06/2010

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Term
Annexation
Definition
Legal term for attaching or affixing personal property to real property 1
Term
Annexer
Definition
Person who owns item as personal property and brings it on to real property 1
Term
Appurtenances
Definition
Rights that go with ownership of real property, a legal term used for both physical and non-physical appurtenances 1
Term
Attachments
Definition
Things connected to the land, whether natural or man-made 1
Term
Bundle Of Rights
Definition
All real property rights conferred with ownership, including but not limited to, the right of use, right of enjoyment, and right of disposal 1
Term
Demand
Definition
The need or desire for a specific good or service by others 1
Term
Easement
Definition
A right to use another person's real property for a particular purpose 1
Term
Fee Simple
Definition
The greatest estate(ownership)that one can have in real property because it is transferable, inheritable, and of indefinite duration, with no conditions on title 1
Term
Fixtres
Definition
Man-made attachments to real property, major fixtures are improvements 1
Term
Government Survey System
Definition
A type of legal description for land referencing principal meridians and base lines designated throughout much of the country, also called GOVERNMENT RECTANGULAR SURVEY or RECTANGULAR SURVEY SYSTEM 1
Term
Immobilitiy
Definition
A physical characteristic of real estate that refers to the fact that real estate itself cannot mover from one place to another 1
Term
Indestructibility
Definition
A physical characteristic of real estate referring to the fact that it can't be destroyed 1
Term
Lot and Block System
Definition
A type of legal description used for platted property, the description states only the property's lot number and block number in a particular subdivision 1
Term
Metes and Bounds System
Definition
A type of legal description that starts at an easily identifiable point of beginning, then describes the property's boundaries in terms of courses and distances, returning to point of begining 1
Term
Personal Property
Definition
Tangible items that (usually) are not permanently attached to or part of real estate, also called PERSONALTY or CHATTEL 1
Term
Property
Definition
The right of ownership in a thing, such as the right to use, possess, transfer, or encumber it 1
Term
Real Property
Definition
Not only the physical land and everything attached to it but also the rights of ownership (bundle of rights) in real estate, also called REALTY 1
Term
Scarcity
Definition
The perceived supply of a good or service relative to the demand for the item 1
Term
Trade Fixture
Definition
Equipment a tenant installs for business that may be removed before the lease ends, unless prohibited by contract 1
Term
Transferability
Definition
The ability to freely buy, sell, encumber, or dispose of propertyin any way the owner sees fit 1
Term
Utility
Definition
The ability of a good or service to satisfy human wants, needs, or desires 1
Term
Appurtenant Easement
Definition
An easement that burdens one piece of land for the benefit of another 2
Term
Conditions
Definition
Provisions in a deed or other document that make the parties' rights and obligations depend on the occurence (or non-occurence) of some event 2
Term
Condominiums
Definition
Property developed for co-ownership, with each co-owner having seperate interest in an individual unit and an undivided interest in the common areas of the property 2
Term
Consideration
Definition
Anything of value, such as money, goods, services, or promises, given in exchange for something from another party 2
Term
Covenants
Definition
Promises or guarantees, express or implied, in a deed or other document 2
Term
Deed
Definition
An instrument that conveys grantor's interest, if any, in real property 2
Term
Deed Restrictions
Definition
Limitations on real property use, imposed by a former owner through language included in the deed 2
Term
Dower
Definition
A special real property interest that many states give by law as as statutory life estate to a spouse when a married person owns real property 2
Term
Easement
Definition
A right to use another's real property for a particular purpose 2
Term
Easement in Gross
Definition
An easement that benefits a person, not a piece of land 2
Term
Eminent Domain
Definition
Government's constitutional power to take (or appropriate or condemn) private property for public use as long as the owner is paid just compensation 2
Term
Encroachment
Definition
A physical object intruding onto a neighbor's property 2
Term
Encumbrance
Definition
A nonpossessory interest, such as an easement or lien, that burdens the property owner's title 2
Term
Equitable Title
Definition
An interest in property created on execution of a valid sales contract. Land contracts and some options also create equitable title 2
Term
Leasehold Estates
Definition
Interests that give the holder a temporary right to possession of the estate, without title 2
Term
Leases
Definition
Contracts in which one party pays te other rent in exchange for possession of real estate, a lease is the conveyance of a leasehold estate from the fee owner to a tenant 2
Term
License
Definition
a revocable, non-assignable permission to enter another's land for a particular purpose 2
Term
Life Estate
Definition
Freehold estate that lasts only as long as a specified person lives 2
Term
Purchase Contracts
Definition
Contacts in which a seller promises to convey title to real property to a buyer in exchange for the purchase price. Also called PURCHASE AGREEMENTS, SALE CONTRACTS, SALE AGREEMENTS, PURCHASE AND SALE AGREEMENTS, or EARNEST MONEY AGREEMENTS 2
Term
Quitclaim Deeds
Definition
Deeds that convey any interest in a piece of real property the grantor has at the time the deed is executed, a quitclaim deed makes no warranties regarding title if any held by the grantor 2
Term
Root of Title
Definition
The deed (or other document of transfer)that 40 years ago, was the most recently recorded deed 2
Term
Severalty
Definition
Ownership by one individual 2
Term
Title
Definition
The actual lawful ownership of real property, this is not a document, but a concept of theory dealing with ownership 2
Term
Undivided Interest
Definition
Gives each co-owner the right to possession of the whole property, not just a fraction of it 2
Term
Warranty Deeds
Definition
Deeds that carry warranties of clear title and the grantor's right to convey title 2
Term
Zoning Laws
Definition
Local ordinances dividing a city, county, etc., into zones, specifying different types of land use in different areas 2
Term
Conformity
Definition
Economic theory that says a particular home achieves its maximum value when surrounded by similar homes in style and function 3
Term
Contribution
Definition
Economic theory that says a particular item or feature of a property is only worth what it actually contributes in value to that parcel of real estate 3
Term
Decline
Definition
Third stage a neighborhood goes through in its life cycle, when property values begin to fall as demand falls 3
Term
Economic Base
Definition
The main business or industry that a community uses to support and sustain itself, a good economic base is critical for real estate values 3
Term
Environmental Hazard
Definition
A situation in which there is potential for harm to persons or property from conditions that exist in a property or surrounding area
Term
Gentrification
Definition
Process of rapid revitalization of properties in a neighborhood which causes current residents to be displaced 3
Term
Growth
Definition
First stage a neighborhood goes through in tis life cycle, where property values tend to rise as development activity begins and continues 3
Term
Law of Diminishing Returns
Definition
Economic theory that says, beyond a certain point, the added value of an additional feature, addition, repair, etc., is less than the actual cost of that item, also called the LAW OF DECREASING RETURNS 3
Term
Law of Increasing Returns
Definition
Economic theory that says the added value of an additional feature, repair, etc., is more than the actual cost of that item 3
Term
Neighborhood
Definition
Group of houses or properties that shares common characteristics, also refered to as MARKET AREA 3
Term
Nuisance
Definition
Anything outside the boundaries of a property that interferes with the right of quiet enjoyment of that property 3
Term
Progression
Definition
A principle that says the value of a home is helped by other homes in an area, usually said about the "worst" home in the "best" area 3
Term
Radon Gas
Definition
Naturally occurring radioactive gas that emanates from rocks, it is odorless, colorless, and tasteless but has been identified as a cancer-causing agent 3
Term
Regression
Definition
Principle that says the value of a home is held down by other homes in an area, usually said about the "best" home in the "worst" area 3
Term
Revitalization
Definition
Final stage a neighborhood goes through in its life cycle, when property values rise again as demand increases, resulting in increased renovation and rehabilitation, rapid revitalization is called gentrification 3
Term
Stability
Definition
Second stage a neighborhood goes through in its life cycle, when the are is built up to the point there is little, if any, vacant property, also referred to as EQUILIBRIUM 3
Term
Stigmatized Property
Definition
Property held to be undesirable by most people because of a past event(often a crime or environmental hazard) 3
Term
Substitution
Definition
Economic theory that says an informed buyer will not pay more for a home (or a feature in a home) than a comparable substitute 3
Term
Supply & Demand
Definition
Law of economics that says, for all products, goods, and sercives, when supply exceeds demand prices will fall and when demand exceeds supply, prices rise 3
Term
Value
Definition
The amount of goods or services offered in the marketplace in exchange for something else, we typically measure amount in a dollar figure 3
Term
Acceleration Clause
Definition
Contract clause that gives a lender the right to declare the entire loan balance due immediately because of a specific reason, such as borrower default 4
Term
Alienation Clause
Definition
Contract clause that gives the lender certain stated rights when property ownership is transferred 4
Term
Amoritized Loans
Definition
Loans with payments applied to principal and interest 4
Term
A.R.M. - Adjustable Rate Mortgage
Definition
Mortgage that permits a lender to periodically adjust the interest rate to reflect fluctuations in the cost of money 4
Term
Assumption
Definition
One party taking over responsibility for a loan made to another 4
Term
Buydown
Definition
Additional funds, in the form of points, paid to a lender at the begining of a loan to lower the interest rate and monthly payments 4
Term
Conforming Loans
Definition
Loans that meet FNMA/FHLMC standards and which can be sold on the secondary market, NONCONFORMING LOANS do not meet these standards 4
Term
Conventional Loan
Definition
A loan not insured or guaranteed by a government entity 4
Term
Federal Home Loan Mortgage Corporation - FHLMC - "Freddie Mac"
Definition
A nonprofit, federally chartered institution (now privately owned) that functions as a buyer and seller of residential mortgages 4
Term
Federal National Mortgage Association - FNMA - "Fannie Mae"
Definition
The nation's largest privately owned investor in conventional, FHA, and VA residential mortgages (government owned as of 2010)
Term
FHA - Federal Housing Administration
Definition
A government agency under the Department of Housing and Urban Development (HUD) that insures mortgage loans 4
Term
Government National Mortgage Association - GNMA - "Ginnie Mae"
Definition
A government owned corporation that guarantees principal and interest payments to investors who buy its mortgage-backed securities 4
Term
Land Contract
Definition
A real estate installment agreement in which the buyer makes payments to the seller in exchange for the right to occupy and use property, but no deed or title is transferred until all, or a specified portion of, payments have been made 4
Term
Lease/Option
Definition
When a seller leaser property to someone for a specific term, with the tenant having an option to buy the property at a set price during the lease term 4
Term
Lease/Purchase
Definition
When a seller leases property for a specific term, with the tenant agreeing to buy the property at a set price during or following the lease term 4
Term
Loan-to-Value Ratio (LTV)
Definition
The amount of money borrowed compared to the value of the property 4
Term
Mortgage
Definition
An instrument that creates a lien against real property as security for a note 4
Term
Mortgage Banker
Definition
One who originates mortgage loans, usually funding loans with a company's own funds, mortgage bankers may sell loans or retain and service them 4
Term
Mortgage Broker
Definition
One who, for a fee, places loans with investors but, typically does not service such loans, mortgage brokers generally do not fund their loans 4
Term
PITI - Principal, Interest, Taxes, and Insurance
Definition
Typical payment on a mortgage loan, encompasses the seperate fees 4
Term
Points
Definition
One percent of a loan amount, points can be charged for any reason, but often are used for buydowns, where they may also be called DISCOUNT POINTS 4
Term
Portfolio Lenders
Definition
Financial institutions that make real estate loans that they keep and service in-house, instead of selling o the secondary markets 4
Term
Private Mortgage Insurance (PMI)
Definition
Insurance offered by private companies to insure a lender against default by a borrower on a loan 4
Term
Real Estate Owned (REO)
Definition
Property acquired by a lending institution through foreclosure and held in inventory, often just referred to as an REO 4
Term
Security Instrument
Definition
An instrument that gives the creditor the right to sell the collateral to satisfy the debt if the debtor fails to pay according to the terms of the agreement 4
Term
Subject to(an existing mortgage)
Definition
When property is transferred to a buyer with an existing mortgage or lien, but without the buyer accepting personal responsibility for the debt 4
Term
VA - Veterans Administration
Definition
A government agency that guarantees mortgage loans for eligible veterans 4
Term
Anticipation
Definition
An economic theory that says value is created by the expectation of future benefits 5
Term
Arm's Length Transaction
Definition
A transaction that occured under typical conditions in the marketplace, where each of the parites is acting in its own best interests 5
Term
Assemblage
Definition
Combining two or more parcels of land into one larger parcel 5
Term
Assssed Value
Definition
The amount of value that is used to calculate taxes due, usually representing a percentage of the market value 5
Term
Balance
Definition
1. A supply and demand condition that exists in the real estate market when there are slightly more properties available than buyers 2. The right mix of Capital, Entrepreneurship/management, Labor, and Land (CELL) that results in the best return on investment from the land, this determines the land's maximum productivity 5
Term
Change
Definition
A principle affecting value that says all factors incluencing real estate - physical, economic, governmental, and social (PEGS), are constantly changing and thus property value itself is subject to constant change 5
Term
Competition
Definition
Two or more parties trying to obtain the same thing 5
Term
Conformity
Definition
An economic theory that says a particular property achieves its maximum value when surrounded by properties that are similar in style, function, and utility, also called HOMOGENEITY 5
Term
Contribution
Definition
An economic theory that says a particular item or feature is only worth what it actually contributes in value to that piece of real estate, this is known as the feature's CONTRIBUTORY VALUE 5
Term
Cost
Definition
The dollars needed to develop, produce, or build something 5
Term
Externalities
Definition
Any event, item, etc., outside the boundaries of a property 5
Term
Insurance Value
Definition
The amount that a property can be insured for, usually only representing the replacement costs of the structure and disregarding any value for the land 5
Term
Law of Diminishing Returns
Definition
An economic theory that says that, beyond a certain point, the added value of an additional feature, addition, repair, etc., is LESS than the actual cost of that item, also called the LAW OF DECREASING RETURNS 5
Term
Law of Increasing Returns
Definition
An economic theory that says the added value of an additional feature, repair, etc., is MORE than the actual cost of that item 5
Term
Loan Value
Definition
The amount of money that a lender is willing to let someone borrow to finance a particular piece of property, usually a percentage of the property's market value 5
Term
Market Price
Definition
The price that property sold for in an actual transaction 5
Term
Market Value
Definition
The most probably price a property should bring in a competitive and open market 5
Term
Plottage
Definition
An increase in value (over the cost of acquiring the parcels) by successful assemblage, usually due to a change in use 5
Term
Progression
Definition
A principle that says the value of a home is helped by the other homes in an area, this is usually said about the "worst" home in the "best" neighborhood 5
Term
Regression
Definition
A principle that says the value of a home is held down by the other homes in an area, this is usually said about the "best" home in the "worst" area 5
Term
Site Value
Definition
The value of land with enhancements that make it ready for building or structure 5
Term
Substitution
Definition
An economic theory that says an informed buyer wil not pay more for a home or feature in a home than a comparable substitute 5
Term
Typical Buyer
Definition
A buyer who is acting in his or her own best interest, without undue pressure, influence, or emotional attachment, and would rationally and readily accept a less expensive substitute, if available in the marketplace 5
Term
Value
Definition
The amount of goods or services offered in the marketplace in exchange for something else 5
Term
Value In Use
Definition
The value of property to the owner as it is presently being utilized, without considering its highest and best use or present marker value (e.g., value that property actually contributes to an owner's business or personal enjoyment) 5
Term
Business Cycles
Definition
General swings in business activity, resulting in expanding and contracting activity at different phases of the cycle 6
Term
Buyer's Market
Definition
A situation in the housing market where buyers have a large selection of properties to choose from 6
Term
Consumer Price Index (CPI)
Definition
The measurement of the fixed cost of a market basket of goods and services, used as an inflation indicator 6
Term
Economics
Definition
The study of how resources are allocated 6
Term
Federal Reserve Board (the Fed)
Definition
The government body responsible for U.S. monetary policy, maintaining economic stability, and regulating commercial banks 6
Term
Fiscal Policy
Definition
The government's plan for spending, taxation, and debt management 6
Term
Interest Rate
Definition
The cost of money, the additional percentage of a borrowed sum that a borrower must repay to the lender for use of the lender's money 6
Term
Monetary Policy
Definition
The government's means of controlling the supply and cost of money 6
Term
Real Estate Cycles
Definition
General swings in real estate activity, resulting in expanding and contracting activity at different phases of the cycle 6
Term
Seller's Market
Definition
A situation in the housing market where sellers can choose from a large number of buyers who are looking for houses in a particular area 6
Term
Absorption Analysis
Definition
A study of the number of property units that can be sold or rented in the marketplace during a certain period of time 7
Term
Amenities
Definition
Tangible or intangible aspects of a property 7
Term
Base Companies
Definition
The main companies and industries that bring new business and jobs to the area 7
Term
Competitive Supply
Definition
Properties available in the marketplace that a buyer would accept as ready substitutes, since they share the same features and utility as the subject 7
Term
Economic Base Analysis
Definition
A study of the present business and employment situation in an area, conducted to determine the likelihood of continued stability, growth, or decline 7
Term
Feasibility Study
Definition
A study of the cost-benefit relationship of an economic endeavor, also called a FEASIBILITY ANALYSIS 7
Term
Household
Definition
A group of people living in one unit of housing 7
Term
Market
Definition
A place where goods are exchanged, often between buyers and sellers 7
Term
Market Analysis
Definition
The study of economic conditions in an area 7
Term
Market Disaggregation
Definition
A process that involves separating different users and different uses for property in the real estate market, focusing on real estate products on the supply side of the market 7
Term
Market Segmentation
Definition
A process that involves identifying and categorizing the various sub-markets that exist within a larger market, focusing on participants in the demand side of the market 7
Term
Net Household Formation
Definition
The number of new households being formed or moving into an area, minus the number of households leaving the area 7
Term
Productivity Analysis
Definition
a means of determining the current position of a property in relation to the marketplace, also called PROPERTY PRODUCTIVITY ANALYSIS OR PRODUCTIVITY MARKET ANALYSIS 7
Term
Service Companies
Definition
The non-base companies that follow the critical mass of customers created by the base industry 7
Term
Standing Stock
Definition
Completed construction projects, e.g. houses 7
Term
Sub-Markets
Definition
A subset of the larger real estate market 7
Term
Annual Percentage Rate (APR)
Definition
The relationship between the cost of borrowing money and the total amount financed, represented as a percentage 8
Term
Blockbusting
Definition
Attempting to induce owners to sell their homes by suggesting that the ethnic or racial composition of a neighborhood is changing, with the implication that property values will decline, also called PANIC SELLING or PANIC PEDDLING 8
Term
Equal Credit Opportunity Act (ECOA)
Definition
Federal law that prohibits discrimination in granting credit to people based on sex, age, marital status, race, color, religion, national origin, or receipt of public assistance 8
Term
Extraordinary Assumption
Definition
An assumption directly related to a specific assignment, which if found to be false, could alter the opinions or conclusions of the appraisal 8
Term
Fannie Mae
Definition
Federal National Mortgage Association (FNMA), the nation's largest and privately owned investor in residential morgages, a secondary market buyer that makes more capital available for lending by banks to consumers 8
Term
Federal Housing Act
Definition
Title VIII of the Civil Rights Act of 1968, law makes it illegal to discriminate based on race, color, religion, sex, national origin, disability, or familial status in the sal or lease of residential property, including vacant land intended for residential housing. The law also prohibits discrimination in advertising, brokerage, lending, appraisal, and other housing services, and specifically prohibits blockbusting, steering, and redlining 8
Term
FIRREA - Financial Institution Reform, Recovery, and Enforcement Act
Definition
Passed in 1989 as a comprehensive savings and loan bailout and preventive measure agains future S&L insolvency. This law recognizes the USPAP as the current industry standare for appraisals and identifies the Appraisal Foundation as the authority for professional appraisal standards 8
Term
Limiting Conditions
Definition
Statements by the appraiser explaining the framework used to reach an appraisal value 8
Term
Reconciliation
Definition
The appraisal process of analyzing the values derived from the different appraisal approaches to arrive at a final opinion of value 8
Term
Redlining
Definition
Refusal to make loans on property located in a particular neighborhood for discriminatory reasons 8
Term
RESPA - Real Estate Settlement Procedures Act
Definition
Federal law dealing with real estate closings that sets forth specific procedures and guidelines for disclosure of settlement costs, RESPA lets buyers compare cost of services, requires specific statements/disclosures, prevents kickbacks, and limits escrows lender can hold 8
Term
Steering
Definition
Channeling prospective buyers or tenants to particular neighborhoods based on their race, religion, or ethnic background 8
Term
Title VIII
Definition
Another name for the Federal Fair Housing Act, which is Title VIII of the Civil Rights Act of 1968 8
Term
Truth-In-Lending Act (TIL)
Definition
Federal law requiring lenders to disclose consumer credit costs in order to promote informed use of credit 8
Term
URAR - Uniform Residential Appraisal Report
Definition
A standard appraisal report form used by lenders and appraisers since it was developed by secondary mortgage market players Fannie Mae (Form 1004) and Freddie Mac (Form 70) 8
Term
USPAP - Uniform Standards of Professional Appraisal Practice
Definition
Professional appraisal standards promulgated by the Appraisal Foundation and now recognized thoughout the United States as the accepted standards of appraisal practice 8
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