Real Estate Appraiser flashcards

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

Market value

The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, with informed buyers and sellers acting without undue stimulus.

Highest and best use

The reasonably probable use that is legally permissible, physically possible, financially feasible, and maximally productive, producing the highest present value of a property.

Principle of substitution

The value of a property tends to be set by the cost of acquiring an equally desirable substitute property with similar utility, absent costly delay or risk.

Contribution

The value added by a property component is measured by its effect on market value, not by its original cost, and may be positive or negative.

Anticipation

Value is created by the expectation of future benefits, so current market value reflects buyers' and sellers' forecasts of income, appreciation, or use potential.

Conformity

Maximum value tends to occur when properties in a neighborhood are reasonably similar in use, size, age, and design, avoiding excessive heterogeneity or nonconforming uses.

Progression and regression

Progression is the value increase of a lesser property from association with superior properties; regression is the value decrease of a superior property from association with inferior properties.

Fee simple estate

Absolute ownership of real property, subject only to government powers and private restrictions, with indefinite duration and unrestricted inheritance and transfer rights.

Leased fee estate

An ownership interest held by a landlord with the right to receive rent and reversion under a lease, subject to the tenant's leasehold interest.

Exposure time

The estimated length of time a property would have been offered on the market before the hypothetical sale date at the concluded value, assuming reasonable marketing.

External obsolescence

A loss in value caused by factors outside the property, such as adverse neighborhood conditions, economic decline, or proximity to nuisances, generally incurable by the owner.

Sales comparison approach

A valuation method that estimates value by analyzing recent sales of similar properties and adjusting their prices for differences from the subject property.

Cost approach

A valuation method that estimates value as land value plus the cost to reproduce or replace improvements new, less accrued depreciation from all causes.

Reproduction cost

The cost to construct an exact replica of the subject improvements using current prices for the same materials, design, and construction quality.

Replacement cost

The cost to construct improvements with equivalent utility using current standards, materials, and design, without replicating outdated or surplus features.

Accrued depreciation

The difference between the cost new of improvements and their contributory value at the appraisal date, including physical, functional, and external losses.

Effective gross income

Potential gross income minus vacancy and collection loss plus other income; it is the income available before deducting operating expenses.

Net operating income

Effective gross income minus operating expenses, excluding debt service, depreciation, capital expenditures, and income taxes.

Capitalization rate

The ratio of net operating income to property value, used to convert expected income into an indication of value.

Gross rent multiplier

A market-derived ratio of sale price to gross rent, used to estimate value by multiplying the subject's gross rent by the selected multiplier.

Reconciliation

The final step in which the appraiser weighs the reliability and relevance of each value indication to select a single supported value conclusion, not a simple average.

Paired sales analysis

A technique that compares two otherwise similar sales differing in one characteristic to isolate and measure the market effect of that characteristic.

Land residual technique

A method that estimates land value by deducting the income attributable to improvements from net operating income and capitalizing the remaining income to land.

USPAP

The Uniform Standards of Professional Appraisal Practice, which establishes ethical and performance standards for appraisal, review, and consulting assignments.

Scope of work

The type and extent of research and analyses an appraiser performs, determined by the assignment's intended use, complexity, and applicable reporting requirements.

Competency rule

A USPAP requirement that an appraiser have the knowledge and experience to complete an assignment competently or take steps to gain it before accepting.

Record keeping rule

A USPAP requirement to retain workfiles for at least five years after the report date or two years after final disposition of a judicial proceeding.

Appraiser independence

The requirement that an appraiser reach unbiased conclusions without coercion or improper influence, and avoid contingent compensation and undisclosed interests.

Confidentiality

The ethical duty not to disclose confidential assignment information or results except to the client or as authorized or required by law.

FIRREA

A federal law that, among other things, requires appraisals for federally related transactions to be performed by state-certified or licensed appraisers complying with USPAP.

Federally related transaction

A real estate transaction involving a federal financial institution or regulator that requires an appraisal performed by a state-certified or licensed appraiser.

Fair housing appraisal rule

The legal requirement that appraisers avoid discriminatory practices and base value conclusions on objective market evidence rather than protected-class characteristics.