State Exam Prep Book: Property Valuation And Financial Analysis

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absorption rate

Back 1

The estimated time required to sell or lease property within a designated area at its fair market value.

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ad valorem

Back 2

Real estate taxes imposed on property based on its assessed value.

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appraisal

Back 3

An individual's opinion of a property's value on a specific date, documented in an appraisal report.

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broker price opinion (BPO)

Back 4

An agent’s opinion of a property’s fair market value based on comparable sales.

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capital gain

Back 5

On resale of a capital item, the amount by which the net sale proceeds exceeding the price paid for the property. Used for income tax computations. Capital gains are called short- or long-term based upon length of holding period after acquisition. Capital gains are taxed at lower rates than other types of gains and ordinary income.

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capitalization approach

Back 6

An appraisal method used by an appraiser to arrive at a property's value based on the present worth of a property's future net operating income.

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comparable sales

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Sales of properties recently sold which have similar characteristics as the subject property being evaluated and are used for analysis in the appraisal of the subject property.

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comparison approach

Back 8

A method for comparing a given property with similar or comparable surrounding properties; also called market comparison.

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economic life

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The period of time over which a property will yield a return on capital invested to own it.

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economic obsolescence

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A loss in value of a property due to external factors and not the condition of the property itself.

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effective age

Back 11

The physical age of a property based on the condition of the structure, distinct from its chronological age.

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elements of value

Back 12

Factors that must be present for real estate to have value: demand, utility, scarcity and transferability.

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fair market value (FMV)

Back 13

The price a reasonable, unpressured buyer would pay for property on the open market.

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financial analysis

Back 14

The consideration of the durability, quantity and quality of income and expenses generated and incurred by an income-producing property.

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functional obsolescence

Back 15

A loss of value due to adverse factors within the structure which affect the utility of the structure, and thus its value and marketability.

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gross rent multiplier

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A factor which, when multiplied by the gross income of a property, produces an estimate of the property's value.

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highest and best use

Back 17

An appraisal phrase addressing the use of a property which is most likely to produce the greatest net return on the land and/or buildings over a given period of time.

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home energy audit

Back 18

An audit conducted by a Home Energy Rater evaluating the energy efficiency of the home.

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home inspection

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A non-invasive examination of the mechanical, electrical and plumbing systems of a dwelling, as well as the components of the structure, such as the roof, ceiling, walls, floors and foundations.

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income approach

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One of three methods of the appraisal process applied to income producing property to develop the appraiser's opinion of value.

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influences on value

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An aspect of the principle of change, recognizing the effect of physical, economic, government and social changes on real estate value.

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loan-to-value ratio (LTV)

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A ratio stating the outstanding mortgage balance as a percentage of the mortgaged property’s appraised value.

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market comparison

Back 23

An appraisal method used by an appraiser to arrive at a property's value by a comparison of recent sales prices of similar properties, adjusted for differences in the properties.

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narrative report

Back 24

A summary of all factual materials, techniques and appraisal methods used by the appraiser in establishing the value of a property. This is the most thorough type of appraisal report.

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opportunity cost

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The cost of an action that is forgone in choosing to take an alternative action, usually a consideration when making one investment over another.

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physical life

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The total number of years a building is presumed to potentially exist in a productive capacity.

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principles of value

Back 27

The application of several appraisal principles to arrive at a final value. The basic principle is substitution.

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quantity survey

Back 28

The most detailed method of the cost approach in appraisal. This is generally done by contractors when bidding a project.

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reconciliation

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The final step in the appraisal process. Placing weight on the alternative value conclusions, to arrive at a final value decision.

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regression, Principle of

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A real estate valuation theory which holds the worth of a greater valued property is negatively affected by the close proximity of numerous lesser valued comparable properties.

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replacement cost

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The cost to replace a structure with one having utility equivalent to that being appraised, but constructed with modern materials and according to current standards, design and layout.

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return on investment

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A measure of annual income or profits on a sale in relation to capital invested.

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site valuation

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The appraised valuation of the ground (site) separate from any structure (improvement) that may be on the site.

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unearned incremental increase

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An increase in the value of the property due to outside influences separate from any action by the property owner.

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vacancy rate

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The percentage of a building's space that is not rented over a given period.

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value

Back 36

The present worth stated in dollars of the future benefits arising out of the ownership of a property.

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yield

Back 37

The interest earned by an investor on an investment (or by a bank on the money it has loaned). Also, called return.