NIESV FEM flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Market value
- The estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing, each acting knowledgeably, prudently and without compulsion.
- Years' purchase
- The multiplier applied to net income to derive capital value in the investment method; in perpetuity it equals 100 divided by the yield percentage, so a 10% yield gives a multiplier of 10.
- Comparative method
- A valuation approach that derives value from recent, verified sales of comparable property, adjusting each comparable for differences in time, location, size, condition, tenure and facilities before adopting a figure.
- Residual method
- A development valuation approach where land value equals gross development value less total development costs, finance and developer's profit; it is highly sensitive to small changes in value or cost.
- Governor's consent
- The approval required under the Land Use Act before the holder of a statutory right of occupancy may assign, mortgage, sublet or otherwise alienate the interest; failure can render the transaction ineffective.
- Statutory right of occupancy
- A right of occupancy granted by the state Governor under the Land Use Act, usually for a fixed term such as 99 years and evidenced by a certificate of occupancy.
- Easement essentials
- A right of use over another's land requiring a dominant and servient tenement, diversity of ownership, benefit to the dominant land, and a right capable of lying in grant.
- Restrictive covenant
- A promise restricting the use of land that can bind successors in equity where the burden runs with the land and the covenant touches and concerns the land; positive covenants generally do not run.
- Net operating income
- Gross potential income less vacancy and collection loss less operating expenses; it excludes debt service, depreciation and income tax and is the income capitalised in the investment method.
- Capitalisation rate
- Net operating income divided by property value; it is derived from comparable sales or built up from a risk-free rate plus risk, illiquidity and management premiums less expected growth.
- Debt service coverage ratio
- Net operating income divided by annual debt service; lenders commonly require a ratio above 1.20 to ensure income covers mortgage payments with a margin.
- Cash-on-cash return
- Annual pre-tax cash flow divided by equity invested; it measures the current income return on equity but ignores appreciation and the timing of cash flows.
- Gross development value
- The estimated market value of a completed development, used in the residual method as the starting figure from which construction, fees, finance and developer's profit are deducted.
- Developer's profit
- The return required for risk and coordination in a development, commonly expressed as a percentage of gross development value or total cost and tested in sensitivity analysis.
- Critical path
- The longest sequence of dependent activities through a project network; activities on it have zero float, so delay to any of them delays practical completion.
- Retention
- A percentage of the contract sum withheld from interim payments as security for performance, commonly 5%, with half released at practical completion and half after the defects liability period.
- Contingent fee
- A fee that depends on the outcome of the instruction, such as the reported value or loan approval; it is incompatible with a valuer's duty of independence and should be declined.
- Professional indemnity insurance
- Insurance protecting a practitioner against claims for negligence or error in professional work; cover should match the risk of the instructions accepted.
- Conflict of interest
- A situation where a personal, financial or professional interest could bias the practitioner's judgement, requiring disclosure and, where it cannot be managed, withdrawal from the instruction.
- Client due diligence
- Identity verification, understanding of the transaction and source-of-funds checks required under money laundering rules for estate agency and property work.
- Service charge
- A payment by a tenant towards the landlord's costs of maintaining and insuring the building, recoverable only to the extent the lease permits and apportioned as the lease specifies.
- Dilapidations
- A schedule recording breaches of the repairing covenant at the end of a lease, used to support a claim for the reasonable cost of reinstating the property.
- Rent review
- A lease clause setting the interval and basis for adjusting rent, such as open market, index-linked or turnover, together with the assumptions applied.
- Sinking fund
- A reserve collected through the service charge to fund future major repairs or replacement, based on a condition survey and reconciled separately from day-to-day expenditure.
- Mortgage versus charge
- A mortgage transfers an interest in land as security, while a charge gives the lender remedies without transferring title; both should be registered to perfect the security.
- Joint tenancy
- Co-ownership with the right of survivorship, requiring the four unities of interest, title, time and possession; on death the interest passes to the surviving joint tenants.
- Tenancy in common
- Co-ownership in distinct shares with no right of survivorship; each owner's share passes by will or intestacy rather than automatically to the other owners.
- Profit à prendre
- A right to take something from another person's land, such as timber, minerals or crops; unlike an easement it confers a right of taking, not merely of use.
- Internal rate of return
- The discount rate at which a project's net present value equals zero; it is compared with the investor's target return, though NPV is preferred where project scale differs.
- Discounted cash flow
- An appraisal that discounts each year's net income and the reversion at a target rate of return, producing a net present value used to judge whether a price is justified.
- Weighted average cost of capital
- The blended cost of equity and after-tax debt weighted by their shares of total capital; it is used as the hurdle rate in property investment appraisal.
- Break-even occupancy
- Operating expenses plus debt service divided by gross potential income; it shows the occupancy level needed to cover costs and mortgage payments.