Real Estate Feasibility Test 1 Ch. 10 Set 1

Front 1

in making this estimate, appraisers use a systematic approach referred to as the

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appraisal process

Front 2

value is based on data provided from recent sales of properties highly comparable to the property being appraised.

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sales comparison approach

Front 3

one technique used in conjuction with the income capitalization approach to valuation is to develop what are referred to as

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gross income multipliers

Front 4

sales price/gross income=

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GIM

Front 5

assumes all space is occupied

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potential gross income

Front 6

based on occupied space (potential gross income less vacancies)

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effective gross income

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obtained by subracting operating expenses from rents reported on the comparables at the time of sale

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net operating income

Front 8

After determining NOI, it is then divided by the transaction price to obtain what is defined in the industry as the

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capitalization rate. R

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NOI/R

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Value

Front 10

after estimating noi over an expected period of analysis in the preceding section, step 3 in the present value approach to income capitalization requires the selection of a

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discount rate or required internal rate of return.

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REV (resale price)

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reversion value

Front 12

used to approximate the present value of cash flow for the remaining economic life of the asset

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terminal cap rate

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terminal cap rate is greater than ----------- because over time, as properties age and depreciate, the production of income declines; therefore, the expected growth in NOI for an older property should be less that that of a new property.

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going in cap rate

Front 14

the difference between total property value which is driven by rents and cash flows, and the cost of constructing an improvement on a given site.

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residual land value

Front 15

the value of a property can be estimated by explicityl taking into consideration the requirements of the mortgage lender and equity investor

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mortgage equity capitalization

Front 16

in many situations when properties are being considered for purchase, there are existing leases in place that have below or above market rents. such properties are purchased as

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leased fee estates

Front 17

the rationale for using the --------- to valuing properties is that any informed buyer of real estate would not pay more for a property than what it would cost to by the land and build the strructure.

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cost approach

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The cost approach estimate is reduced by estimating any

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physical deterioration, functional obsolescene, or external obsolescene

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the essence of the cost approach for existing properties is first to price the improvement at its current

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replacement cost

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many structures may wear out faster or slower over time. in such cases the appraiser should consider the -------- rather than its actual age

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effective age