Licensed Residential Appraiser flashcards

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

USPAP Standard 1

Governs the development of a real property appraisal: defining the problem, determining scope of work, collecting and analyzing data, applying the approaches, and forming a value opinion.

Scope of work

The type and extent of research and analysis performed in an assignment. It must be sufficient to produce credible results given the intended use and intended users.

Extraordinary assumption

An assumption about an uncertain condition that, if false, would alter the value opinion. The appraiser must disclose it and state its effect on the conclusion.

Hypothetical condition

A condition known by the appraiser to be contrary to fact as of the effective date, used to analyze a proposed change or to follow legal instruction.

Jurisdictional exception

A USPAP provision permitting departure from a specific Standard when it conflicts with applicable law; the appraiser must report the exception and comply with the law.

Workfile retention period

The appraiser must retain the workfile for at least five years after delivery of the report, or two years after final disposition of a judicial proceeding.

Four forces influencing value

Social, economic, governmental, and environmental (physical) forces act on a property and shape its value by changing demand, supply, or the property's utility.

Principle of contribution

A component of a property contributes to its value in proportion to what it adds to the whole, measured by market reaction rather than by its cost.

Principle of conformity

Value is maximized when a property is reasonably similar to surrounding properties; excessive similarity is not required, but gross over- or under-improvement reduces value.

Principle of anticipation

Value is created by the expectation of future benefits, so a property's present worth reflects the income or amenities buyers expect to receive in the future.

External obsolescence

A loss in value caused by forces outside the property, such as neighborhood decline, oversupply, or proximity to a nuisance; generally not curable by the owner.

Fee simple estate

The absolute ownership interest in real property, unlimited in duration and freely transferable, subject only to the four governmental powers and private encumbrances.

Leased fee estate

The owner's interest in a property that is subject to a lease; the owner holds the right to receive contract rent and the reversion at lease expiration.

Police power

The government's authority to regulate private property for the public health, safety, and welfare, exercised through zoning, building codes, and land use regulations.

Nonconforming use

A use that existed lawfully before current zoning was adopted and may continue despite no longer conforming to present regulations, subject to local rules.

Fixture vs personal property

A fixture is an item permanently attached to real property and transfers with it; personal property is movable and generally excluded from a real property value opinion.

Market value definition

The most probable price in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller acting prudently and knowledgeably and price unaffected by undue stimulus.

Investment value

The value of a property to a particular investor based on that investor's required rate of return, financing, and tax circumstances; it may differ from market value.

Insurable value

The cost to replace or repair the destructible improvements of a property, typically excluding land, foundations, and site improvements, used for insurance purposes.

Going concern value

The value of an operating business enterprise including real property, personal property, and intangible assets such as goodwill, brand, and trained workforce.

Liquidation value

The value realized in a forced or limited-time sale where the seller is under duress; it is typically lower than market value because exposure time is abbreviated.

Principle of substitution

A buyer will not pay more for a property than the cost of acquiring an equally desirable substitute, which underlies the sales comparison, cost, and income approaches.

Principle of balance

Value is maximized when the factors of production-land, labor, capital, and coordination-are in proper proportion; imbalance produces surplus or deficiency in the property.

Marginal analysis

An improvement should be added only when its marginal cost is less than or equal to the marginal value it contributes to the property.

Increasing and decreasing returns

Adding units of an input increases returns up to a point, after which additional inputs produce smaller marginal gains and eventually reduce total returns.

Absorption rate

The rate at which available units are sold or leased in a market over a period, used to estimate demand and the time needed to absorb current inventory.

Months of supply

Current inventory divided by average monthly absorption; about five to six months generally indicates a balanced market, with lower figures favoring sellers.

Exposure time

The estimated length of time a property would have been offered on the open market prior to a hypothetical sale at market value on the effective date.

Market segmentation

Dividing a market into submarkets by property type, location, price range, and buyer profile so the subject is compared with truly competitive properties.

Highest and best use tests

A use must be legally permissible, physically possible, financially feasible, and maximally productive, applied in that order, to qualify as highest and best use.

Cost approach formula

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

Income approach formula

Value equals net operating income divided by the capitalization rate; net operating income is potential gross income less vacancy and operating expenses.

Reconciliation

The final step of the valuation process in which the appraiser weighs the approaches by relevance and data reliability to reach a single value opinion.

Section and acreage

A section is one square mile, or 640 acres, and a township contains 36 sections; one acre equals 43,560 square feet.

Gross living area

Finished, heated, above-grade floor area measured by exterior dimensions; below-grade and unfinished areas are reported separately and not included.

Functional obsolescence

A loss in value from a defect in design, layout, or utility, such as a poor floor plan or outdated systems; it is curable if the cost to cure is less than the value added.

Metes and bounds description

A legal description that defines a parcel by bearings and distances from a point of beginning, returning to that point, often referencing monuments and adjoining parcels.