Chapter 4, Value & Appraisal

Front 1

Accrued Depreciation

Back 1

The difference between replacement cost and market value.

Front 2

Appraisal

Back 2

An opinion of value based upon a factual analysis. Note: An appraisal is an estimate, not a determination of value.

Front 3

Capitalization

Back 3

Determining a present value of income property by converting all future benefits, such as tax benefits, cash flow, and reversion into a value estimate.

Front 4

Capitalization Rate

Back 4

An interest rate, plus a recapture rate. The overall capitalization rate is a weighted rate, which combines the interest rate for the land and the capitalization rate for the building. The interest rate for the land"is the rate of interest which the value of the land should earn if invested. It contains proper provision for interest to the land and to the building. Recapture of the capital invested in the building over its estimated remaining economic life is recapture rate. It is the rate developed when a property"s net income is divided by its sales price. Cap Rate = Risk Interest (Return ON investment) (+) Recapture Rate (Return OF investment)

Front 5

Comparative Market Analysis

Back 5

Appraising the value of a property by comparing the price of similar properties (comparables) recently sold. The degree of similarity of the properties and circumstances of the sale are the important characteristics to consider.

Front 6

Competitiion, Principal of

Back 6

Holds that profits tend to breed competition, and excess profits tend to breed ruinous competition.

Front 7

Condemnation

Back 7

The act of taking private property, through the exercise of the power of eminent domain, for public use, upon the payment of a fair compensation.

Front 8

Conformity, Principal of

Back 8

Holds that the maximum of value is realized when a reasonable degree of homogeneity of improvements is present

Front 9

Contribution, Principal of

Back 9

Holds that in successively applying equal increments of land, labor and/or capital to the already existing factor(s), a greater or lesser yield is reached

Front 10

Cost Approach

Back 10

An appraisal approach to the evaluation of property based on the propertys current reproduction or replacement cost less depreciation" plus land value. """

Front 11

Economoic Obsolenscence

Back 11

Loss of desirability and useful life of a property through economic forces, such as zoning changes, traffic pattern changes, etc., rather than deterioration or functional obsolescence.

Front 12

Economic Life

Back 12

The profitable"life of an improvement. Generally

Front 13

Funcitional Obsolescence

Back 13

A loss in value to an improvement resulting from functional problems caused by age or poor design.

Front 14

Gross Rent Multiplier

Back 14

A factor determined from comparable rental property sales that, when multiplied by the monthly rent, will suggest a market value.

Front 15

Highest and Best Use

Back 15

That use which is most likely to produce the greatest net return to the land and/or building, over a given period of time.

Front 16

Income Approach

Back 16

An appraisal method to determine the value of rental property by use of the estimated net income and other benefits to the owner, discounted or capitalized to determine its present value.

Front 17

Market Data Approach

Back 17

The primary method of estimating the value of vacant land and single-family owner-occupied dwellings. Also called comparable approach". "

Front 18

Market Value

Back 18

The price for which property can be sold on the open market, if there is a willing seller, a wiling buyer, and a reasonable time to make the sale.

Front 19

Physical Life

Back 19

Estimated period during which a building may be capable of use, if normally maintained. Actual period during which a building stands.

Front 20

Plottage Increment

Back 20

Increase in value of several parcels of land, when brought under one ownership, making possible a higher utility as a whole.

Front 21

Reconciliation

Back 21

The final step in the appraisal process, where the appraiser considers the three estimates of value derived from the Cost, Income and Sales Comparison approaches

Front 22

Sustitution, Principal of

Back 22

An appraising principle holding that when two or more properties, with substantially the same utility, are available, the one with the lower price receives the greatest demand.

Front 23

Supply and Demand, Principal of

Back 23

Affirms that price or value varies directly, but not necessarily proportionately with, demand; and inversely, but not necessarily proportionately, with supply.

Front 24

Replacement Cost

Back 24

The current cost of rebuilding a structure to its original specifications.

Front 25

Sales Comparison Approach

Back 25

A valuation method, in which the market value is estimated by comparing the subject property, with similar properties which have recently sold. The reliability of this technique is dependent upon the degree of comparability of each sale property to the subject property, the quantity and quality of data available, and the skill and objectivity of the appraiser.

Front 26

Straight Line Depreciation

Back 26

A method of replacing the capital investment of income property, by reducing the value of the property by a set amount annually, over the economic life of the property.

Front 27

Vacancy Factor

Back 27

The estimated percentage of vacancies in a rental project. May be based on past records of the property, or a professional guess if a new project. Surrounding area buildings, if similar, may be used for comparison.