Real Estate Appraiser Examination flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Value in exchange

The most probable price a property would bring in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller acting prudently and knowledgeably.

Principle of substitution

The principle that a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute, setting an upper limit on value in all three approaches.

Principle of contribution

The value of any component of a property equals the amount it adds to total property value, measured by what the market would pay for it, not by its cost.

Principle of conformity

Value is maximized when properties in a neighborhood are reasonably similar; overimprovements suffer regression and underimprovements benefit from progression of surrounding values.

Anticipation

The principle that value is created by the expectation of future benefits, so an estimate of present value must discount expected future income to the effective date.

Increasing and decreasing returns

Adding more of an agent of production increases income up to the point where marginal cost equals marginal benefit; beyond that point, additional investment yields diminishing or negative returns.

Sales comparison adjustment rule

Adjust the comparable to make it equivalent to the subject: subtract when the comparable is superior, add when the comparable is inferior, for each element of comparison.

Gross rent multiplier

Sale price divided by gross monthly rent. The multiplier, derived from comparable sales, is multiplied by the subject's monthly rent to estimate value.

Cost approach formula

Replacement or reproduction cost new minus physical deterioration, functional obsolescence, and external obsolescence, plus land value, equals property value.

Age-life depreciation

Effective age divided by total economic life, multiplied by cost new, estimates total accrued depreciation under the age-life method.

Direct capitalization

Net operating income divided by a capitalization rate derived from comparable sales equals value; the cap rate embeds risk, growth, and capital recovery expectations.

Yield capitalization

A method that converts expected future cash flows into present value by discounting at a market-derived rate of return, often with a terminal reversion.

Highest and best use tests

The use must be legally permissible, physically possible, financially feasible, and maximally productive, applied in that sequence to land as though vacant and as improved.

Absorption rate

The number of units sold or leased in a period divided by total available inventory; it measures how quickly a market absorbs supply.

Six forces affecting value

Social, economic, governmental, environmental, technological, and demographic forces continually change property values and must be analyzed in market analysis.

Market segmentation

Defining the subject's property type, price or rent range, buyer or tenant profile, and geographic market area before selecting comparable sales or rentals.

Scope of Work Rule

USPAP requires the appraiser to determine and perform the research and analysis necessary to produce credible assignment results, given the intended use and users.

Competency Rule

Before accepting an assignment, an appraiser must have the knowledge and experience to complete it competently, or disclose the deficiency and take steps to gain competence.

Jurisdictional Exception Rule

An appraiser may depart from a USPAP requirement only when a law or regulation of a jurisdiction precludes compliance, and must cite the specific law or regulation.

Workfile retention

Workfiles must be retained for at least five years after report delivery, or two years after final disposition of a judicial proceeding, whichever is later.

Contingent compensation prohibition

The Ethics Rule prohibits accepting an assignment fee contingent on a predetermined value, a direction in value, or a stipulated amount of value.

Bundle of rights

The rights of possession, use, enjoyment, disposition, and exclusion that accompany ownership; each may be separated and appraised as a distinct interest.

Easement appurtenant

A nonpossessory right benefiting a dominant parcel and burdening a servient parcel; it runs with the land and can affect highest and best use.

Lien priority

Liens are ranked generally by first in time, first in right, except where statutes such as tax liens grant priority; the ranking affects the value of each interest.

Eminent domain measure

Just compensation equals the market value of the interest taken plus severance damages to the remainder, less any special benefits conferred.

Police power vs. taking

Zoning and building codes are valid police power; a regulation becomes a compensable taking when it deprives the owner of all economically viable use.

Extraordinary assumption

An assumption about a condition that is unknown but that, if false, would change the value opinion; it must be disclosed and is binding on the assignment result.

Hypothetical condition

A condition that is contrary to what is known to exist as of the effective date, assumed to analyze a value scenario such as completion of proposed construction.

Appraisal review

The act of critically examining another appraiser's report to form an opinion of the quality of the work performed and the adequacy of the value conclusion.

Reconciliation

The final analysis in which the appraiser weighs the approaches and comparables and explains why the selected value conclusion is most credible.

Ellwood capitalization rate

Cap rate equals (LTV times mortgage constant) plus (equity ratio times equity dividend rate) minus (change in value times sinking fund factor).

Mortgage constant

Annual debt service divided by the original loan amount; for level payments it equals the interest rate plus the sinking fund factor.

Coefficient of variation

The standard deviation divided by the mean, expressed as a percentage; it compares dispersion among data sets with different units or magnitudes.