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Florida Real Estate
Ch 15 Estimating Real Property Value
50
Real Estate & Planning
Not Applicable
01/19/2012

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Cards

Term
Broker/Licensee Appraisals
Definition
Must conduct any appraisals in compliance with Uniform Statndards of Professional Appraisal Practice (USPAP).
May do appraisal for fee but must comply.
May do CMA but cannot refer to it as an appraisal.
May NOT prepare reports for federally related transactions unless holding valid appraisal license.
Term
Appraisal de minimus requirement
Definition
State Certified or licensed appraiser is require unless the transaction is exempt.
de minimus requirement is $250000 or less, does not require appraisal.
Term
Assessed Value
Definition
Value used as a basis for property taxation.
Term
Insurance Value
Definition
Estimate of the amount of money required to replace a structure in the event of and event.
Term
Investment Value
Definition
Price an investor would pay, given the investors own financing requirements and tax situation.
Term
Liquidation Value
Definition
Value associated with a rapid sale. i.e Foreclosure
Term
Going Concern Value
Definition
Value of an income producing propery or business characterized by an operating history.
Term
Salvage Value
Definition
Estimated amount for which improvements can be sold at the end of a structures useful life.
Term
Market Value
Definition
The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, buyer and seller each acting prudently and knowledgeably, assuming price is not affected by undue stimulus.
Term
Cost
Definition
To Create.
Expenditure to create an improvement including materials, labor and land.
Term
Price
Definition
Paid
The amount paid in a particular transaction; the contract price.
Term
Value
Definition
Worth
The worth of something between many market participants.
Term
Overimprovement
Definition
When an owner invests more money in a structure than the owner can reasonably expect to recapture.
Term
Characteristics of Value
Definition
DUST
Demand - desire, need and means to obtain.
Utility - The ability to provide useful services and benefits to an owner or tenant.
Scarcity - Availability of goods in relation to demand.
Transferability - The legal ability to convey title and possession of goods.
Term
Highest and Best Use
Definition
The most profitable use to which a property may be put as long as it is:
Legally Permissible (zoning)
Physically possible (soil, shape, size)
Financially Feasible (
Term
Reconcilliation
Definition
Reconcile differnt results from appraisals and correct errors based on type of property and degree assisgned to each approach.
Term
Principle of Substitution
Definition
A prudent buyer or investor will pay no more for a property than the cost of acquriing through purchase or construction an equally desirable alternative.
Term
Sales Comparison Approach
Definition
Best for Neighborhood Houses and Lots.

Value of property can be estimated accurately by reviewing recent sales of properties (comps) similiar to appraised property.
CBS and CIA
Comp Better Subtract from COMP
Comp Inferior Add to Comp
Upward and downward adjustments for more or less baths, beds, Sq Ft....
Term
Cost Depreciation Approach
Definition
Best for Newly Constructed Homes, checking other approaches and more relvelant for special purpose properties, hospitals, schools or gov buildings.

Purchaser will pay no more than the cost of acquiring a similar site and constructing an acceptable subsitute.

Max value is costs less accrued depreciation.

1)Estimate Current reproduction/replacement costs.
2)Estimate Amount of Depreciation and deduct from rep costs. Land is NOT depreciated.
3)Estimate the Value of the Site.
4)Derive Estimate Value
Add estimated value of the site including improvements to depreciated structure value.
Term
Reproduction Cost
Definition
Amount of money required to build and exact duplicate of the structure.
Term
Replacement Cost
Definition
Amount of money required to replace the structure having same use and functionality.
Term
Quantity Survey Method
Definition
Involves detailed inventory of all labor, materials, products and indirect costs plus profit.

Items are then added up and final cost determined.
Term
Unit in Place Method
Definition
More practical for appraisers.
Cost of materials plus cost of labor is calculated for each component, drive, roof, foundation and floors plus profit.

Items are then added up and final cost determined.
Term
Comparative Sq Foot or Cubed Foot Method
Definition
AKA Comparative Unit Method.
Predominant costing method for appraisals.
Utilized publications for determing standard sq ft costs in different regions.
Estimates costs for main dwelling, rooms porches, carport and garages based on a per sq ft cost.

Less depreciation
Plus land value and improvements

Total Value.
Term
Depreciation
Definition
The loss in value caused by things such as wear and tear, poor design or surroundings.
Term
Accrued Depreciation
Definition
Total depreciation that has accumulated over the years.
Term
Curable Depreciation
Definition
Building component that has been added or repaired and owners can receive money back in added value.
Term
Incurable Depreciation
Definition
Building component that has been added or repaired and the owners cannot receive money back in added value.
Term
Physical Deterioration
Definition
Ordinary wear and tear caused by use, lack of maintenance and physical damage.
Term
Functional Obsolescence
Definition
Anything inferior due to operational inadequacies, poor deisgn or changing tastes. Poor traffic patter, not enough baths....
Term
External Obsolescence
Definition
Loss in value due to influences originating outside the boundaries of the property.
Expressway or power lines in back yard.
Term
Lump Sum Age Life Method
Definition
Based on a raito of property's effective age to its economic life.
Term
Effective Age
Definition
Age indicated by a structure's condition and utility.
Term
Economic Life
Definition
AKA Useful Life.
Total estimated nubmer of years that the structure is expected to contribute to the property's value.
Term
Income Captialization Approach
Definition
Best for Income Producing Properties.

Estimates value based on present worth of future income from property.
Term
Potential Gross Income (PGI)
Definition
Total Annual Income property would produce if fully rented w/no collection losses.
Term
Effecitve Gross Income (EGI)
Definition
PGI less vacancy and collection losses.
Term
Vacancy and Collection Losses (VCL)
Definition
Expected income loss that will result from occasional turnover of renters and periodic vacancies as well as the likeihood that all rental income will be collected.
Term
Net Operating Income
Definition
Incoming remaining after subtracting all relevant operating expenses from EGI.

The Annual Income before mortgage and tax payments.

EGI = PGI - VCL
NOI = EGI - Operating Expenses

Depreciation is not an operating or business expense.
Term
Operating Expenses
Definition
Fixed Expenses - Property taxes, Hazard Insurnace.
Variable Expenses - Utilities, Maintenance, Management.
Reserve for replacements - reserve allowance that provides for the periodic replacement of building components. Roof, HVAC....
Term
Net Operating Income Formula
Definition
NOI= Rate (Capitalization Rate (OAR))* Value (Sales Price) I=VR
Term
Investment Value
Definition
Value of property to a particular investor based on the investor's desired rate of return, risk tolerance and so forth.
Term
Gross Rent Multiplier (GRM)
Definition
Substitute for I=RV on one to four unit rental properties.
Relates sale price to monthly rental income.

Sale Price/Gross Monthly Rent=GRM
Term
Gross Income Mulitplier (GIM)
Definition
Used with Small Income Producting Properties.
Utilizes Annual Income versus monthly in GRM.

GIM = Sales Price/Gross Annual Income.
Term
CMA Preparation
Definition
Presents information concerning three catagories:
Sold within previous 12 months
Currently on Market
Listings that expired previous 12 months
Term
Assemblage
Definition
Combining of two or more properties into one tract.
Term
Plottage
Definition
Added Value as a result of assemblage.
Term
Progression
Definition
Principle that the value of an inferior property is enhanced by its association with superior properties
Term
Regression
Definition
Principle that the value of a superior property is adversely affected by it association with an inferior property
Term
Situs
Definition
Refers to peoples preferences, both physical and economic, for a certain area owing to factors like weather, jobs transportation.
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