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NC Real Estate
NC Real Estate Terms and facts
301
Real Estate & Planning
12/09/2010

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Term
Real Property
Definition
Immovable
Term
Personal Property
Definition
Movable (chattel and personalty are other names)
Term
Fixture
Definition
Once personal property but now real property.Examples - Fructus naturales(flowering bushes), a mail box, a chandelier.
Term
Fructus industriales
Definition
not considered a fixture (crops that require annual planting and cultivation)
Term
Total Circumstances Test
Definition
IRMA: Intent, Relationship, Method, Adaptability
Term
Size, Value, Location
Definition
not important in determining a fixture
Term
Trade Fixture
Definition
Items attached to real property by a tenant under a commercial lease. Considered personal property and removable once lease is finished
Term
Agricultural Fixture
Definition
Agricultural Fixtures (fence) are considered fixtures and not removed by tenant at the end of a lease.
Term
Freehold estate
Definition
Lifetime ownership. Fee Estate (inheritable) includes: Fee simple absolute, FSD, FS to a condition subsequen. non-fee estate (not inheritable) Includes: life estate
Term
Fee simple absolute
Definition
ownership with no limits (highest form of ownership
Term
Fee Simple determinable
Definition
it terminates automatically, automatically reverts to original owner, if pre-determined event happens
Term
Fee Simple subject to a Condition Subsequent
Definition
Does not automatically revert. If condition is violated the owner can regain property by legal action
Term
Life Estate
Definition
Right to own a property (sell, mtg., lease) but only for your lifetime. Cannot will the property.
Term
Estovers
Definition
Using the wood on the property for personal use. Cannot sell wood on a life estate, its considered a "waste of the life estate."
Term
Nonfreehold Estates
Definition
Estate for years, Estate from year to year, Estate at Will, Estate at Sufferance.
Term
Estate at will
Definition
Friendly basis. either party can terminate without notice.
Term
Estate from year to year
Definition
Periodic Tenancy - a tenancy of indefinite duration
Term
Estate for years
Definition
Begins and ends on a certain day. Terminates automatically.
Term
Estate at sufferance
Definition
tenant entered lawfully, but remains unlawfully. Also called holdover tenant. possession is on a hostile basis
Term
Week-to-week Tenancy notice
Definition
2 days
Term
Month-to-Month Tenancy notice
Definition
7 days
Term
year-to-year tenancy
Definition
30 days
Term
Tenancy by the Entireties
Definition
Husband and Wife. Automatic survivorship. Will cannot override survivorship. Favored in NC
Term
Termination of Tenancy by the Entireties
Definition
1. death of husband or wife 2. mutual agreement 3. divorce. (if couple continues after divorce to own, it is tenancy in common.
Term
Tenancy in common
Definition
Ownership legally favored in NC between two or more ppl not married. Survivorship does NOT exist
Term
Probate
Definition
Legal process to pass ownership to heirs
Term
partition the property
Definition
force division of the property in tenancy in common
Term
Tenancy in common "encumber"
Definition
each owner may encumber his part, but not the whole property.
Term
Joint Tenancy
Definition
Not favored in NC. Ownership is equally divided with right of survivorship.
Term
Condo ownership
Definition
from paint to paint. Air space only,
Term
NC condo act
Definition
condos after 1986 must record declaration (description), detailed plat, prepare bylaws
Term
Right to cancel new condo
Definition
within 7 days of execution of contract
Term
Townhouse ownership
Definition
party walls, land underneath,
Term
Cooperative ownership
Definition
You own shares of stock in a corp that owns the entire land. NO FEE SIMPLE OWNERSHIP
Term
Riparian Rights
Definition
Water
Term
Navigable body of water
Definition
ownership to the waters edge
Term
non navigable
Definition
to the center of the body of water
Term
Littoral
Definition
ownership on tidal body of water. Ownership to the average high water mark.
Term
Appurtenance
Definition
A right, privilage or improvement that passes with the real property. i.e. riparian rights,air rights, subsurface rights,easement
Term
Encumbrance
Definition
right to land that diminishes the value. i.e. Lien,
Term
NC dep. or revenue lien
Definition
taxes owed to the state (NC)
Term
Personal property tax lien
Definition
taxes owed to the county and/or city on personal property
Term
life of Judgment lien
Definition
10 years.
Term
Mechanics lien must be filed within
Definition
120 days of the last day of labor or materials furnished
Term
Special assessment lien
Definition
Takes preciseness over other types of liens except for real property taxes
Term
ad valorem taxes
Definition
Real property tax. tax value is equal to property market value
Term
Octennial Reappraisal
Definition
reassessment of ad valorem taxes every 8 years
Term
Horizontal adjustment
Definition
withing OR every 4 years, county and city taxes can be adjusted.
Term
What lien is superior to all other liens?
Definition
real property tax liens
Term
Easement
Definition
right of way
Term
Easement in Gross
Definition
easement for a lifetime. i.e. duke power
Term
Express
Definition
in writing
Term
Prescriptive easement
Definition
adverse possession (20 years in NC)
Term
title
Definition
ownership
Term
Lis Pendens
Definition
a recorded notice informing all interested parties of legal action.
Term
Encroachment
Definition
an improvement that extends across the boundary line of a particular property.
Term
Deed
Definition
tangible evidence of title(ownership)
Term
testate
Definition
dies with a will
Term
intestate
Definition
dies without a will
Term
Devise
Definition
give a will of real property
Term
bequeath
Definition
will of personal property
Term
Elements of Adverse possession
Definition
OCEAN - Open, Continuous, Exclusive, Actual, Notorious for 20 years
Term
Basic zoning classes
Definition
residential, commercial, Industrial, agricultural
Term
zoning is governed by?
Definition
police power
Term
Who regulates subdivisions?
Definition
The city and county laws
Term
Subdivision
Definition
2 or more parcels for use of development now or in the future
Term
Elements of a deed?
Definition
in writing, legal capacity, both grantor and grantee must be named,adequate property description, adequate language, grantor must sign, voluntary acceptance.
Term
non essential elements of a deed
Definition
date, witnessed, recorded,acknowledged or notarized, state the sale price, sealed
Term
Excise tax
Definition
sale price/500 always round but NEVER round down.
Term
most desirable means of land description in NC?
Definition
Metes and Bounds
Term
Chain of title
Definition
a report showing all conveyances and encumbrances for 30 years
Term
Abstract of title
Definition
History of title i.e. judgments, liens, taxes and encumbrances
Term
opinion of title
Definition
report by an attorney of marketability of the title. (certificate of title)
Term
Actual eviction
Definition
landlord evicts tenant
Term
constructive
Definition
tenant has the right to leave and not pay rent
Term
Peaceable self help eviction
Definition
landlord cannot force the tenant out of property (change locks,turn off utilities)
Term
Law of agency
Definition
the body of law that governs the relationship between agents and their principals (clients)
Term
unilateral contract
Definition
Only one of the parties is bound to act
Term
bilateral
Definition
both parties are bound to act. i.e. most real estate contracts are bilateral
Term
executed contract
Definition
a contract that has been performed in full
Term
exucatory contract
Definition
a contract that has not been fully performed
Term
valid contract
Definition
satisfies all legal requirements for a contract and is enforceable by law
Term
void contract
Definition
not enforceable by law but still can be honored by the parties. i.e. oral contract. one party must disaffirm the contract to make it VOID
Term
voidable contract
Definition
can be voided based on some legal principals i.e. contract with a minor
Term
Essential elements of a contract (mutual assent)
Definition
offer and acceptance, mutual agreement, meeting of the minds.
Term
consideration
Definition
something of value
Term
contracts that must be in writing (statute of frauds)
Definition
1.any conveyance of real property, 2.contract lasting more than 3 years,3. any contract not to compete in a certain buisness 4. promise to pay debt 5. repay debt after bc 6. options to purchase
Term
Exclusive right to sell
Definition
Firm is guaranteed to receive a commission no matter who sells the property.
Term
exclusive agency
Definition
The firm is guaranteed a commission if anyone, excluding the owner, sells the property
Term
Make up of real estate commission
Definition
9 members total
7 appointed by the governer
1 by the speaker of the house
3 must be brokers
at least 2 can't be involved in RE
3 year staggared terms
Term
NCREC elect a new chairperson how often?
Definition
every year
Term
LLBEANS (Broker)
Definition
Lists, leases, buys, exchanges, auctions, negotiates, sells
Term
Notify the NCREC within how many days of address change?
Definition
10
Term
trade names must be registered with...
Definition
county register of deeds and notify the NCREC in writing and furnish the NCREC with a copy of the certificate
Term
PB license is only valid when...
Definition
supervised by a BIC
Term
Time share
Definition
5/5 (five intervals over a period of 5 years)
may be called club membership, limited partnership, prepaid hotel res., vacation license, freehold,estate for years or vacation bond
Term
public offering statement is not required to...
Definition
disclose the number of time shares sold or the number of available sales.
Term
time share developer must hold all payments in escrow for
Definition
10 days or until canceled by the purchaser.
Term
Time share project must have a ...
Definition
project broker with a RE license
A Time Share Registrar
Term
A time share licensee can be ...
Definition
reprimanded by the NCREC as well as suspending the time share project
Term
Federal civil act of 1866
Definition
Race (sale or rental of real and personal property)
Term
Fed. fair housing act of 1968
Definition
Race, religion, color, national origin and sex (DOES NOT APPLY TO COMMERCIAL OR INDUSTRIAL REAL ESTATE)
Term
Blockbusting
Definition
inducing an owner to sell their property by creating fear of change
Term
steering
Definition
attempting to steer a buyer to or away from a particular area due to class
Term
redlining
Definition
refusal and advertising because of discrimination
Term
Fed fair housing act of 1988
Definition
adds Handicap status and familial status (including pregnant women)
Term
Federal exemptions act of 1968
Definition
a. an owner selling or leasing his own property can discriminate but cannot discriminate in advertising.
b. rental of 1 to 4 units if owner lives there
c. a private club or religious org. when renting or selling non-commercial property to its members
Term
State fair housing act exemptions
Definition
a. does NOT exempt FSBO
b. owner can discriminate in the rental of 1 - 4 unites if family member or owner lives there
c. college or university can discriminate in rental of single sex dorms.
Term
State versus federal?..
Definition
always go with the stricter
Term
Exempt from disclosure?
Definition
1. New constructions 2.foreclosures and 3. lease purchases where the new owner is occupying.
Term
if disclosure form is not presented...
Definition
buyer has a 3 day rescission period either from receipt of the form or formation of a contract.
Term
if organization hires a real estate firm ...
Definition
the real estate firm cannot discriminate
Term
protected classes?
Definition
7
Term
tax basis (cost basis)
Definition
Purchase price + closing cost
Term
Adjusted tax basis
Definition
(buy side) purchase price + closing costs, comm, improvements
Term
realized tax basis
Definition
(sell side) selling price - closing cost, commission
Term
capitol gain =
Definition
realized basis - adjusted basis
Term
deductions
Definition
1. a maximum of interest up to 1,000,000 borrowed on both residences 2. county and city tax 3. discount points and loan origination fees on the primary residence.
Term
to be deductible, loan origination fees and points must be paid for by..
Definition
money outside of that borrowed from the lender.
Term
things not deductible...
Definition
insurance, principal payments, repairs, depreciation, homeowners ass. payments in a townhouse or condo.
Term
rental deductions...
Definition
mtg. interest, real property taxes, maintenance & repairs, property insurance, utilities, supplies, advertising, admin cost, mgm fees, salaries, depreciation, HOA dues
Term
What cannot be depreciated?
Definition
land
Term
What can be depreciated
Definition
building and improvements, except on personal residence
Term
Boot is..
Definition
taxable from a 1031 exchange
Term
a principal residence CANNOT be used in a..
Definition
like-kind-exchange (1031)
Term
Vaca home may not be deductible if used more than
Definition
10% of the days rented, 14 days per year...whichever is greatest
Term
A home office..
Definition
must be used exclusively for business
Term
HO-2
Definition
broad form
Term
HO-3
Definition
all risk form (most widely used)
Term
HO-4
Definition
tenant policy ONLY personal property (liability included)
Term
HO-6
Definition
Condo ownership form
Term
HO-8
Definition
Modified coverage - used when cost to replace house is more than market value...may be used in older homes
Term
Package insurance includes...
Definition
property and liability
Term
Endorsement
Definition
an addition to an insurance policy that increases the number of perils covered.
Term
Coinsurance
Definition
a clause which means that the insured must share the loss with the Insurance company if the property is under insured. less than 80%
Term
flood insurance must be...
Definition
bought separately
Term
the wood frame method is...
Definition
most popular in NC
Term
Two story house is..
Definition
the most economical
Term
transitional style is..
Definition
very desirable
Term
Standard ceiling height is
Definition
8 feet
Term
Roof pitch
Definition
slop of roof = 12 inches in from fascia and measure up...whatever the vertical line measures to...will be for example 4/12
Term
Footing
Definition
lowest part of the structure
Term
piers
Definition
column that supports the floor framing over an open span between the foundation walls
Term
sill
Definition
the lowest horizontal wooden member of the house frame. rests on top of the foundation forming a base for the floor joists
Term
joist (floor framing)
Definition
attached to the sill, supports the floor and its load..spaced 16 to 24 inches apart
Term
girder
Definition
heavy wooden or steel beam that runs across the top of the piers and supports the joists
Term
subfloor
Definition
unfinished sheets (usually plywood) that are laid on top of the floor
Term
studs
Definition
vertical members to which coverings are applied. attached to the subfloor by the sole plate
Term
header
Definition
a beam located above the doors and windows to strengthen the wall
Term
what are interior walls made of..
Definition
gypsum board also called sheetrock or wallboard
Term
sheathing
Definition
the first layer of exterior covering applied to the walls and roof. often made of plywood, osb or fiberboard.
Term
sash (window)
Definition
component of window that holds the glass
Term
muntins (window)
Definition
horizontal bar that divides the glass panes
Term
mullions (window)
Definition
vertical bar that divides the panes
Term
Frame (window)
Definition
holds the sash in place
Term
head (window)
Definition
top of the frame
Term
jambs(window)
Definition
sides of the frame
Term
sill (window)
Definition
bottom of the frame
Term
most common window?
Definition
double hung window
Term
siding
Definition
outside layer of the sheathing, the finish
Term
most popular roof in NC?
Definition
the gable roof
Term
eave
Definition
the overhang of the roof slope extending beyond the walls.
Term
soffit
Definition
underside of the eve
Term
fashia board
Definition
flat board attached to the eave (the gutter is attached to the fascia)
Term
flashing
Definition
sheet metal attached to protrusions in the roof to protect against water seepage.
Term
insulation value
Definition
R-value. the higher the R-value, the more resistant to heat flow.
Term
NC required R-values?
Definition
Walls R-13. Ceiling R-30. Floors R-19
Term
building code is enforced by...
Definition
local inspectors licensed by the state
Term
Any known environmental hazards are considered...
Definition
material fact
Term
Asbestos
Definition
in houses prior to 1978. May cause respiratory disease
Term
friable
Definition
broken down into tiny filaments and particles that become airborn
Term
Encapsulate
Definition
process to prevent asbestos from spreading
Term
lead based paint
Definition
in about 75% of homes prior to 1978. can cause serious damage to brain, kidneys, nervous system and red blood cells.
Term
lead based paint requirement
Definition
must test for and disclose if found.
Term
Residential Lead-Based Paint Hazard Reduction Act
Definition
TWO disclosures to be given. disclosure attached to the sales contract and info pamphlet given to perspectives.
Term
buyers have ... to test for lead based paint
Definition
10 days...in those 10 days the contract is not binding. this includes FSBO
Term
Radon can be reduced by...
Definition
ventilation system or exhaust fans
Term
GS-93A
Definition
NC Real Estate license law
Term
License expired not more than 6 months may...
Definition
pay 55 dollars to reactivate and submit a request to activate form
Term
Trust accounts are insured up to
Definition
100,000 for each person
Term
Firms must open separate trust accounts for ...
Definition
each HOA, if firm is managing HOA's
Term
A firm or broker can deposit how much in a trust for service charges?
Definition
100 dollars
Term
interest earned on a trust must be...
Definition
dispersed promptly, within 30 days
Term
can the broker appoint someone such as a secretary to deposit trust funds? t/f
Definition
true
Term
Class A Trust
Definition
Earnest Money & security deposits (other than cash) within 3 BANKING DAYS FOLLOWING ACCEPTANCE
Term
Class B Trust
Definition
Rent, settlement proceeds, cash & other trust funds ...within 3 BANKING DAYS AFTER RECEIPT OF FUNDS
Term
Cash must ALWAYS be...
Definition
deposited in a trust within 3 BANKING DAYS AFTER RECEIPT
Term
Escrow agent Must give EM deposit to Attorney no less than...
Definition
10 days before anticipated closing
Term
Brokers do not have to keep a seperate ledger sheet for each individual property that you manage t/f?
Definition
true
Term
is NC a lien theory state?
Definition
no
Term
NC is a .... theory state
Definition
title
Term
lien theory state
Definition
use the mtg to as primary financing
Term
title theory state
Definition
uses the deed of trust as primary financing
Term
Who receives the mortgage?
Definition
the lender
Term
who gives the mortgage?
Definition
the borrower
Term
Acceleration clause
Definition
sum due in full upon default
Term
due on sale clause
Definition
loan balance is due immediately if the borrower sells without consent of the lender
Term
prepayment penalty
Definition
NC Law prohibits a prepayment on any residential loan of 150,000 Or less
Term
FHA and VA loans do not have
Definition
prepayment or due on sale clauses
Term
amortization
Definition
the gradual liquidation or elimination of a debt over a period of years through regular payment of P + I
Term
real estate Loans are most of the time paid in ...
Definition
arrears (i.e. loan paid on june 1st is actually interest for may)
Term
GPM Graduated payment plan
Definition
lower than normal, increasing at certain intervals ...causing differed interest
Term
Negative Amortization
Definition
(differed interest) less interest in the beginning buy payments but more as time goes on.
Term
Adjustable (variable) rate (ARM)
Definition
can go up or down
Term
rate caps
Definition
protect the borrower
Term
periodic interest rate cap (anniversary cap)
Definition
limits the amount of increase of decrease in the interest rate at each adjustment date
Term
Life of loan cap (lifetime cap)
Definition
Establishes a ceiling that the interest rate cannot exceed during the life of the loan
Term
payment cap
Definition
limits actual amount of increase per month (could result in negative amortization)
Term
Term Loan payment plan
Definition
interest only loan (principal is payed in full at the end of the loan term) BALLOON PAYMENT
Term
Trustee
Definition
holds the deed of trust (legal title) for the lender until it is payed off and handles foreclosure. is appointed by the lender
Term
Power of sale Clause
Definition
gives the trustee the right to not wait for a court ordered foreclosure
Term
right of defeasance (defeat)
Definition
right to clear the title, pay off the debt in full.
Term
the trustee does not have to ...
Definition
1.be an attorney 2. does not need a real estate license
Term
foreclosure step 1
Definition
advertise for 30 days at the county courthouse
Term
foreclosure step 2
Definition
advertises in the local newspaper for 30 days
Term
foreclosure step 3
Definition
holds an auction
Term
foreclosure step 4
Definition
waits for an upset bid "statutory redemption period" 10 days
Term
foreclosure step 5
Definition
if bid is upset the statutory redemption period must be repeated
Term
foreclosure step 6
Definition
trustee delivers to the highest bidder
Term
the borrower has the right to...
Definition
step up and pay debt in full anytime during the foreclosure procedure. this will stop the foreclosure and give legal title
Term
Deficiency and surplus
Definition
borrower can receive any surplus after foreclosure sale. borrower may be obligated to pay the difference if sale does not exceed debt.
Term
Due-on-sale Clause..
Definition
prohibitsa loan assumption. but FHA and VA loans have no due on sale clause
Term
if buyer takes title without knowing about an existing mtg...
Definition
he is not responsible for the debt...the seller remains liable
Term
Conventional loan
Definition
not insured or guaranteed by any government agency. most popular type of loan
Term
noninsured conventional loan must have..
Definition
a downpayment of 20% 80/20 loan to value ratio
Term
insured conventional loan
Definition
requires lower down payment. Loan to value ratio may be 95/5. requires PMI insurance
Term
Discount points
Definition
increase the loan yield for lender or investor
Term
Discount point raises...
Definition
1 point = 1/8% on 30 year loan
2 point = 1/4%
4 points = 1/2%
6 points = 3/4%
8 points = 1%
Term
FHA doesnt...
Definition
make loans, it insures them. It does not insure investors, it insures owner occupied property 1 to 4 family homes.
Term
MIP
Definition
Mortgage insurance premium
Term
FHA Loans have greater risk than insured conventional loans? t/f
Definition
true
Term
FHA 203(b) program
Definition
most popular of FHA programs.
Term
FHA 245(a) and (b)
Definition
graduated payment mortgages
Term
FHA 234(c)
Definition
Condo unit
Term
VA Loans are ...
Definition
guaranteed, NOT INSURED by the VA. has a DIRECT LOAN PROGRAM
Term
Entitlement
Definition
the maximum amount that the VA will guarantee. there is no maximum loan amount but it is usually about 4 times the entitlement.
Term
In a VA loan the lender...
Definition
must release the vet from liability of the loan, not the VA
Term
VA loans can be used for
Definition
a. purchase or construction of 1 to 4 units family residence b. purchase of condo or townhome. c. mobile home. d. home improvements
Term
VA funding fee
Definition
may be required..a certain % of the loan amount..it can be financed.
Term
There is usually no...on VA loans
Definition
down payment...unless the sale price exceeds appraised value.
Term
CRV (certificate of reasonable value)
Definition
not used with any other type of loan. ONLY VA. it establishes Max value and loan amount.
Term
Purchase money mortgage
Definition
loan made directly from the seller to the buyer. takes precedence at foreclosure over judgment and mechanics liens.SELLER IS NOT ENTITLED TO A DEFICIENCY JUDGMENT
Term
take out commitment/loan
Definition
for builders
Term
open end mortgage
Definition
ordinary mortgage which allows borrower to add on more funds
Term
blanket mortgage
Definition
for more than one parcel of RE. often used by developers
Term
package mortgage
Definition
covers real and personal property
Term
Reverse Annual Mortgage (RAM)
Definition
lender pays the property owner
Term
junior mortgage
Definition
second mortgage
Term
wraparound mortgage
Definition
wraps around the first mortgage
Term
mortgages and deeds of trust are valid between the immediate parties...
Definition
EVEN IF THEY ARE NOT RECORDED
Term
there are mutual savings banks in NC? t/f
Definition
false
Term
DOES NOT service loans for investors
Definition
mortgage brokers
Term
DOES service loans for investors
Definition
mortgage companies
Term
secondary MTG. market
Definition
sale of mtgs. to investors, providing the primary market with more funds
Term
FNMA purchases
Definition
VA, FHA and conventional loans
Term
GNMA DOES NOT...
Definition
buy loans
Term
What does GNMA do?
Definition
it approves "loan poolers"
Term
FHLMC (freddie Mac)
Definition
primarily purchases conventional loans...but may also purchase FHA and VA loans.
Term
underwrite
Definition
lending institution approval of the loan
Term
lenders will not accept income unless it is reported for income tax? t/f
Definition
t
Term
depreciation problem
Definition
Deprec. per year X years

100% - total deprec.

amount / deprec ( 00.0 to .000
Term
Rate of profit
Definition
sell price - original price = amt. recieved

amt. rec. / original price = %

Term
return on equity
Definition
pur. price-loan amt. = orig. equity

sale price - purchase price = profit

profit / original equity = %
Term
Market value
Definition
the most likely price a buyer would be willing to pay
Term
market price
Definition
is the actual price paid for the property
Term
cost
Definition
total of past expenditures to obtain improvements to the property
Term
DUST
Definition
Concept of value - Desire, Utility, Scarcity, transferability
Term
Subject property
Definition
the property being appraised
Term
comps (comparable)
Definition
properties in the area that have sold and closed
Term
Sales comparison approach
Definition
the most reliable appraising approach for single family homes and land
Term
URAR
Definition
universal residential appraisal report
Term
Comps must be..
Definition
similar in age, location and characteristic. sold within 12 months and under typical open market conditions
Term
Do not use current listing prices or pending sale prices for comps...t/f
Definition
t
Term
In appraisal NEVER adjust the..
Definition
subject property
Term
When the property is superior to the comp...
Definition
the sale price of the comp. will be adjusted UP
Term
When the property is INFERIOR to the comp
Definition
the comp will be adjusted DOWN
Term
Correlation process
Definition
deriving a final estimate of value from the indicated values of the comps.
Term
The best comps are...
Definition
most like the subject property and need little adjustment
Term
Cost approach
Definition
based on the summation of the land and building value. building value equals replacement or reproduction cost (new) less depreciation
Term
land value
Definition
sales comparison approach
Term
Cost approach may be used for
Definition
schools, churches, public hospitals, fire stations, libraries, gov. agencies, historic structures (have no comps)
Term
3 methods of estimating building cost
Definition
1. quantity survey method 2. unit-in-place method, 3. square foot method
Term
quantity of survey method (cost approach)
Definition
a complete breakdown of all materials, equipment, labor, indirect costs and builder profits.
Term
Unit in place method (cost approach)
Definition
break down of construction cost into seperate units i.e roof masonry wall..
Term
square foot method (cost approach)
Definition
cost per square foot based on similar area structure.
Term
The square food method is the...
Definition
most widely used method of estimation
Term
the cost approach determines
Definition
the upper limit of value
Term
in an appraisal the effective age is more important than the...
Definition
chronological age
Term
methods of depreciation
Definition
1.age/life method 2. market abstraction method. 3. breakdown method
Term
age/life method (Depreciation)
Definition
effective age divided by the number of years in economic life of the structure. for example if the effective age is 20 years and the economic life is 50, then 20 / 50 = 40% depreciation
Term
market abstraction method (depreciation)
Definition
compares to depreciation on comps.
Term
breakdown method (depreciation) based on..
Definition
(most difficult) 1. physical deterioration 2. functional obsolescence 3. economic obsolescence
Term
physical deterioration and functional obsolescence are caused...
Definition
from within the property
Term
economic obsolescence is caused by...
Definition
outside forces and is incurable.
Term
income or income capitalization approach
Definition
FOR INCOME PRODUCING PROPERTIES. value is appraised based on the net income both now and in the future.
Term
Net operating income (NOI)
Definition
Gross rent X occupancy rate) - operating expense.
Term
gross rent
Definition
total possible income. based on market rent (typical tenant on similar property) or actual gross rent received.
Term
occupancy rate
Definition
if a property has a "vacancy rate" of 5% then the "occupancy rate" will be 95%
Term
Formulas used in the Capitalization approach
Definition
1) NOI (net operating expense) / cap rate = value
NOI / cap rate = value
value X cap rate = NOI
Term
Gross rent multiplier (GRM) =
Definition
sales price (comps) divided by gross rent

Market value = gross rent X GRM (Gross rent multiplier)
Term
Reconciliation
Definition
final step in appraisal. does not average the three approaches, but puts the most weight on the approach appropriate.