Basic Appraisal Procedures questions with correct answers graded A+

Term: What are the 8 steps of the valuation process? Definition: 1. Define the problem, 2. scope of work, 3. data collection & property description, 4. data analysis, 5. land value opinion, 6. application of the approaches to value, 7. reconciliation of value indications and final opinion of value, 8. report of defined value. Term: Valuation process Definition: A systematic procedure employed to provide the answer to a clients question about the value of real property Term: Client Definition: The party or parties to engage an appraiser (by employment contract) in a specific assignment Term: Intended user Definition: The clients and any other party as identified, my name or type, as users of the appraisal, appraisal review, or appraisal consulting report by the appraiser on the basis of communication with the client at the time of the assignment Term: Who determines who the intended users will be? Definition: The client Term: Intended use Definition: That use or uses of an appraiser reported appraisal, appraisal review, or appraisal consulting assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment Term: Purpose of the appraisal Definition: The stated reason for an appraisal assignment, i.e., to develop an opinion of the defined value of any real property interest Term: Current date of value Definition: The effective date is contemporaneous with the date of the report Term: Retrospective date of value Definition: Effective date in the past Term: Prospective date of value Definition: A future date Term: Extraordinary assumptions Definition: That assumption, directly related to a specific assignment, which, if found to be false, but alter the appraisers opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about... The property. Term: Hypothetical conditions Definition: This is a condition that is contrary to what exists but is supposed for the purpose of analysis Term: Scope of work Definition: The amount and type of information researched and the analysis applied in an appraisal assignment Term: General data Definition: Items of information on value influences that derived from social call me economic, governmental, and environmental forces and originate outside the property being appraised Term: Specific data Definition: Details about the property being appraised, comparable sale and rental properties, and relevant local market characteristics Term: Trend Definition: A series of related changes brought about by a chain of causes and effects. Trends are forecasted through economic base analysis, statistical analysis, market analysis, and analysis of economic indicators and surveys Term: Comparables Definition: A short term for similar property sales, rentals, operating expenses used for comparison and evaluation process; also called comps Term: Market analysis Definition: The identification and study of the market for a particular economic good or service Term: Highest and best use Definition: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity Term: Land Definition: Either unimproved or improved land Term: Improved land Definition: Considered as being prepared for development by grading, draining, installing street and utilities, etc. Term: Site Definition: Commonly refers to improved so that does not require further land development or subdivision. It is ready for property improvements suited to its highest and best use e.g. a building site Term: Examples of analytical methods that require land value separate from the total property value? Definition: The cost approach, income capitalization involving residual techniques, highest and best use analysis as though vacant Term: What are the six procedures for analyzing land or site value? Definition: Sales comparison approach, extraction, allocation, land residual technique, ground rent capitalization, subdivision development Term: Sales comparison approach for vacant parcels Definition: The appraiser searches for sales of similar vacant parcels. The sale is analyzed and compared to the subject parcel and then adjusted for salient differences, this approach is the most common and preferred method of valuing land, assuming sufficient data is available Term: Extraction Definition: Sales price minus depreciated cost equals land value. When they get sales are unavailable, the appraiser analyze improve property sales similar to subject in land characteristics. The appraiser forms an opinion of the land value by subtracting the depreciated cost of the improvements from the sale price. When procedures applied, it can provide reliable data to assist the appraiser informing about your opinion on the appraised of land. However it will sales should be used, and the appraiser must be experienced in the use of cost and appreciated methodology. This procedure is most applicable when improvements can be reliably valued, such as when the improvements are either new or very old Term: Allocation Definition: The appraiser analyzes improved property sales and allocates prices paid between the land in total property, usually on a ratio basis (ex the structure is 80% the land is 20%). Term: Land residual technique Definition: requires the appraiser to separate the rent between the land and the improvements Term: Ground rent capitalization Definition: the land rent is a no amount, as in a land lease. In other cases the rent is primarily attributable to the land new doing in room use. Example is a surface parking lot in a downtown urban area. The appraiser divides the net amount estimated for the right to use and occupy the land by a land capitalization rate to form an opinion of the land value Term: Subdivision development Definition: can be used for larger tracts of land that have the potential for development into subdivisions. The appraiser analyzes the undeveloped land as if subdivided, developed and sold. To do this, the appraiser subtracts estimated development costs from the estimated proceeds of the sale to derive the net income to be discounted over the estimated sellout period. This type of analysis requires a technique called you capitalization, also referred to as this discounted cash flow analysis (DCF). Term: Sales Comparison Approach Definition: applies appropriate elements of comparison in the analysis Term: Income capitalization approach Definition: measures the present value of the future benefits derived from property ownership Term: income producing property is generally purchase as an Definition: investment Term: capitalization Definition: the conversion of income into value Term: What are the two methods of capitalization that appraisers can perform? Definition: direct capitalization and yield capitalization Term: How do you find the GRM? Definition: divide the sale price by total monthly rent for the property Term: Direct capitalization process calculation for residential property Definition: gross rent per month x gross rent multiplier = value Term: How do you find the capitalization rate? Definition: divide the NOI by the sale price Term: Direct capitalization process calculation for commercial property Definition: net operating income/overall capitalization rate = value Term: IRV Definition: Income = Rent x Value Term: Anticipation and change Definition: the perspective of seeing value as the present value of the future benefits that accrue to real property ownership Term: Supply and demand Definition: obtainable rents are influenced by the competition for similar space Term: substitution Definition: the prices, rents, and rates of return for property tend to be set by the prevailing amounts for equally desirable alternative properties Term: Balance Definition: a reasonable balance among the four agents of production creates and sustains maximum profitability. Imbalance will lead to an overimprovement or an underimprovement Term: Externalities Definition: Positive and negative external forces affect the value of income producing properties Term: Future benefits Definition: Include the right to receive all revenues accruing to the real property over the holding (the term of ownership) plus the net proceeds from resale or reversion of the property at the termination of the investment Term: Potential gross income (PGI) Definition: the total potential income attributable to real property at full occupancy before vacancy and operating expenses are deducted Term: Effective gross income (EGI) Definition: The anticipated income from all operations of the real property after an allowance is made for vacancy and collection losses Term: Met operating income (NOI) Definition: The actual or anticipated net income that remains after all operating expenses are deducted from the effective gross income, but before mortgage debt service and income taxes are deducted, maybe calculated before or after deducting replacement allowance. And oh I can be represented by the Io symbol Term: Pretax cash flow Definition: The portion of net operating income that remains after total mortgage debt service is paid before ordinary income tax on operations is deducted; also called the forecast cash flow, equity dividend, cash throw-off, or cash-on-cash Term: After-tax cash flow Definition: The portion of pretax cash flow that remains after all income tax liabilities have been deducted Term: Reversion Definition: A lump sum benefit but an investor receives or expects to receive at the termination of an investment Term: The typical investor seeks what? Definition: The recovery of the amount invested i.e., the return of capital, plus a profit i.e. return on capital Term: Rate of return Definition: The ratio of income or yield to the original investment; the ratio of the current annual net income generated from the operation of an enterprise to the capital investment, the net yield over the duration of the investment Term: Capitalization rate (R) Definition: Any rate used to convert income to value Term: Overall capitalization rate (Ro) Definition: Income rate for a total real property interest that reflects the relationship between a single year net operating income expectancy and the total property price or value; used to convert net operating income into an indication of overall property value Term: Equity capitalization rate (Re) Definition: An income rate that reflects the relationship between a single year's pre-tax cash flow expectancy and the equity investment; used to convert pre-tax cash flow (equity dividend) into an equity value indication; also called the cash-oncash rate, cash flow rate, or equity dividend rate. Term: Mortgage capitalization rate (Rm) Definition: The capitalization rate for debt; ratio of the annual debt service to the principal amount of the mortgage loan. A mortgage capitalization rate may be calculated based on the initial mortgage amount or the outstanding mortgage amount; also called annual constant or mortgage constant. (Ratio of NOI to original debt; debt service expressed as % of original loan) Term: Yield rate Definition: rate of return on capital, usually expressed as a compound annual percentage rate for projection periods greater than one year Term: interest rate Definition: the rate of return or yield rate on debt capital usually expressed as the nominal annual percentage of the amount loaned or invested Term: discount rate Definition: An interest rate used to convert future payments or receipts into present value Term: return on capital Definition: the additional amount received for use of the investor's capital until it is recaptured (analogous to the yield rate or the interest rate) Term: return of capital Definition: the recovery of invested capital. The rate of return is analogous to the rate at which an allowance for capital recovery is made. Term: direct capitalization Definition: A method used to convert an estimate of a single year's income expectancy into an indication of value in one direct step, either by dividing the income estimate by an appropriate rate or by multiplying the income estimate by an appropriate factor. (only the 1st year's income is considered) (no separate mathematical distinction is made between the return on and return of capital - it's all in the rate) Term: yield capitalization Definition: the capitalization method used to convert future benefits into present value by discounting each future benefit at an appropriate yield rate or by developing an overall rate that explicitly reflects the investment's income pattern, value change, and yield rate (also known as discounted cash flow (DCF) analysis (the distinction between return of and return on capital is always definite and precise for each year's cash flow and reversion). Term: What does the purpose of an appraisal assignment define? Definition: The type and definition of value used in the assignment Term: A prospective value opinion of a proposed office building at stabilized occupancy would generally require what kind of assignment condition? Definition: An extraordinary assumption Term: The ratio of annual debt service to the principal amount of the mortgage loan is called? Definition: mortgage capitalization rate (or mortgage constant) Term: The amount left after debt service has been deducted from net operating income is called? Definition: pre-tax cash flow Term: What are the three traditional approaches to value? Definition: Cost, sales comparison, and income capitalization Term: What method is used to convert an estimate of a single year's income expectancy into an indication of value? Definition: direct capitalization Term: Jackson is appraising a large tract of land that is being farmed for agricultural use. The land use surrounding the farm is in transition from agricultural to single-family developments. For this assignment, what procedure (s) should Jackson consider to value the land portion of the property? Definition: Sales comparison and subdivision analysis Term: Which two parts of the capitalization formula (IRV or IRF) are reciprocals? Definition: rate and factor Term: reciprocal (aka multiplicative inverse) Definition: an element of a mathematical set that when multiplied by a given element yields the identity element. Term: What are the four primary components of capitalization? Definition: Income, Rate, Factor, & Value Term: Gross income multiplier (GIM) Definition: The ratio between the sale price (or value) of a property and its effective gross income (EGI), or potential gross income (PGI) (applies to all income) Term: What is the procedure for using gross income multipliers? Definition: 1. Begin by examining sales of the properties with similar highest and best use that were rented at the time of sale. 2. The selected properties must be comparable to the subject as well as to each other in their location, physical, and economic characteristics. 3. The selected sales must have operating expense ratios (OERs) similar to the subject's operating expense ratio (ratio of total operating expense to EGI) Term: Operating expense ratio Definition: The ratio of total operating expenses to effective gross income (OE/EGI) Term: Gross rent multiplier (GRM). Definition: This is a similar ratio to GIM, but it applies to rental income only. This multiplier is only applied in less complex properties such as rented single-family homes and 2-4 family small residential income properties. (applies only to rent for a dwelling) Term: Net income ratio Definition: complement to operating expense ratio (NOI/EGI = Net income ratio) Term: Lease Definition: a written contract in which the rights to use and occupy land or structures are transferred by the owner to another for a specified period of time in return for a specified rent Term: gross lease Definition: the landlord (i.e. lessor) pays all the operating expenses Term: Net lease Definition: the tenant (i.e., lessee) pays all the operating expenses Term: what are the five lease types Definition: flat rental, graduated rental (step-up lease, step-down lease), revaluation lease, index lease, & percentage lease Term: flat rental (aka level payment lease) Definition: a lease with a specified level of rent that continues throughout the lease term Term: graduated rental Definition: a lease that provides for specified changes in rent at one or more points during the lease term Term: step-up lease Definition: the payments increase at specified intervals Term: step-down lease Definition: the payments decrease at specified intervals Term: revaluation lease Definition: a lease that provides for periodic rent adjustments based on a revaluation of the real estate under prevailing market rental conditions. This is sometimes accomplished through appraisal or arbitration Term: index lease Definition: a lease, typically long term, that provides for periodic rent adjustments based on the change in an economic index, e.g., a cost-of-living index Term: percentage lease Definition: a lease in which the rent or some portion of the rent represents a specified percentage of the volume of business, productivity, or use achieved by the tenant. This type of lease is frequently used for retail. Most leases will specify a guaranteed minimum rent with overages possible. Term: rent Definition: an amount paid for the use of land, improvements, or a capital good Term: contract rent Definition: the actual rental income specified in a lease (stated rent) Term: scheduled rent Definition: income due under existing lease (actually collected) Term: market rent Definition: the most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the specified lease agreement including term, rental adjustment and revaluation, permitted uses, use restrictions, and expense obligations; the lessee and lessor each acting prudently and knowledgeably, and assuming consummation of a lease contract as of a specified date and the passing of the leasehold from lessor to lessee under conditions, etc... Term: effective rent Definition: the rental rate net of financial concessions such as periods of no rent during the lease term; may be calculated on a discounted basis, reflecting the time value of money, or on a simple, straight-line basis (same as scheduled) Term: deficit rent Definition: the amount by which market rent exceeds contract rent at the time of the appraisal; created by a lease favorable to the tenant, resulting in a positive leasehold, and may reflect uninformed parties, inferior management, or a lease executed in a weaker rental market Term: excess rent Definition: the amount by which contract rent exceeds market rent at the time of the appraisal; created by a lease favorable to the landlord (lessor) and may reflect a locational advantage, unusual management, unknowledgeable parties, or a lease execution in an earlier, stronger rental market. Due to the higher risk inherent in the receipt of excess rent, it may be calculated separately and capitalized at a higher rate in the income capitalization approach. (opposite of deficit) Term: Percentage rent Definition: rental income received in accordance with the terms of a percentage lease; typically derived from retail store and restaurant tenants and based on a certain percentage of their gross sales. Term: overage rent Definition: the percentage rent paid over and above the guaranteed minimum rent or base rent; calculated as a percentage of sales in excess of a specified break-even sales volume. This is not excess rent, but is a contract rent. Term: rent analysis for fee simple interest Definition: based on the market rent the property is capable of achieving. Term: What is the first step in analyzing a property's earning power Definition: analyze NOI expectancy Term: Potential Gross Income (PGI) Definition: the total rent possible if the property is 100% occupied Term: Vacancy & Collection Loss Definition: allowance for reductions in gross potential income attributable to projected vacancy... and potential collection loss considerations` Term: vacancy (in operating statement) Definition: expected loss in income as a result of periodic vacant space attributable to two issues: unrented space and tenant turnover Term: What does PGI include? Definition: scheduled rent, escalation income, market rent, and other income Term: effective gross income (EGI) Definition: drived by subtracting an allowance for vacancy and collection loss from PGI Term: operating expenses Definition: the periodic expenditures necessary to maintain the real property and continue production of the effective gross income, assuming prudent and competent management Term: fixed expenses Definition: operating expenses that generally do not vary with occupancy and that prudent management will pay whether the property is occupied or vacant Term: what expenses are fixed? Definition: taxes & insurance Term: variable expenses Definition: operating expenses that generally vary with the level of occupancy or the extent of services provided Term: What are some variable expenses Definition: management charges, leasing fee, utilities, heat, air-conditioning, general payroll, cleaning, maintenance and repair, decorating, grounds and parking area maintenance, miscellaneous expenses (security, supplies, rubbish removal & exterminating, snow removal) Term: Management Charges Definition: whether management services are contracted or provided by thep roeprty owners, they are property expenses of operation and must be included. Typically, they are expressed as a percentage of EGI and reflect the local pattern for such charges. Term: Leasing fee Definition: These are commissions paid to agents for negotiating and securing property leases Term: utilities Definition: amounts are usually projected based on an analysis of past charges and current trends. It is important to distinguish the obligations of each party in the lease. Term: Heat Definition: Usually a tenant expense in single-tenant, industrial, and retail properties Term: Air conditioning Definition: expense may be charged separately or included under another category such as electricity or fuel Term: general payroll Definition: includes payment to all employees who services are essential to property operation and management Term: cleaning Definition: a major expense in may office buildings. Cost is usually estimated in cents per square foot of rentable area and may be a tenant expense, but often appears as an owner's expense Term: maintenance & repair Definition: the total expense for property maintenance and repair is affected by the extent to which building components and equipment replacements are covered in the replacement allowance. Term: Decorating Definition: this charge varies with local practice and the supply of and demand for space. Term: replacement allowance Definition: an allowance that provides for the periodic replacement of short lived building components that wear out more rapidly that the building itself and must be replaced periodically during the building's life. Term: Total operating expenses Definition: the sum of all fixed and variable operating expenses and the replacement allowance cited in the operating expense estimate. Term: Net operating income (NOI or Io) Definition: The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income, but before mortgage debt service is deducted; may be calculated before or after deducting the replacement allowance. Term: mortgage debt service (Im) Definition: The periodic payment for interest on and retirement of the principal of a mortgage loan. Term: Pre-tax cash flow (PTCF) Definition: The portion of net operating income that remains after total mortgage debt service is paid but before ordinary income tax on operations is deducted Term: Operating expense ratio (OER) Definition: the ratio of total operating expenses to effective gross income (OE/EGI); the complement of... NIR, i.e., 1-NIR. Term: Net income ratio (NIR) Definition: the ratio of net operating income to effective gross income (NOI/EGI); the complement of... OER, i.e., 1-OER. Term: Debt coverage ratio (DCR) Definition: The ratio of net operating income to annual debt service;... measures the ability of a property to meet its debt service out of net operating income; also called debt service coverage ratio (DSCR) Term: What is the formula that expresses debt coverage ratio? Definition: DCR = Io/Im Term: What are the 6 major components of a building that appraisers should observe for valuation conditions? Definition: foundation, framing (floor and wall supports), roofing, plumbing, electrical wiring, and heating, ventilation and air conditioning (HVAC) Term: what are the three common types of foundations? Definition: slab (monolithic slab and slab on perimeter stem wall), pier, and wall (crawl space & basement) Term: What are the three common construction materials for foundations? Definition: poured concrete, concrete block & permanent wood (PWF) (oler residents you can also find fieldstone, rubblestone or brick foundations) Term: What are the two common frame walls? Definition: Balloon framing & platform framing Term: What are some common types of roof designs? Definition: flat, gable, saltbox, hip, gambrel, mansard & shed Term: what are the 3 major divisions of plumbing? Definition: supply system, septic system, & mechanical system Term: How many overhead wires should lead to the service entrance cap of a building? Definition: three Term: What does HVAC stand for? Definition: heating, ventilation & air conditioning Term: What are the four types of heating and cooling systems? Definition: forced air, hot water, steam & electric Term: what are the six general categories of design for houses? Definition: One story, one & one half story, two-story, split-levels, contemporary design, & specialized designs Term: There are two common types of slab foundations. One is the slab on a perimeter stem wall, and the other is called ? Definition: monolithic Term: a lender will typically require a water test if a property has what? Definition: a private well Term: If an appraiser observes missing flashing, what construction system is the appraiser viewing? Definition: roof Term: foundations walls are generally built on what? Definition: footings Term: reproduction cost Definition: The estimated cost to construct, at current prices, as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship, and embodying all the deficiencies, super-adequacies, and obsolescence of the subject building. Term: replacement cost Definition: The estimated cost to construct, at current prices as of the effective date of the appraisal, a building with utility equivalent to the building being appraised, using modern materials and current standards, design, and layout. Term: direct costs Definition: These are hard cost expenditures for the labor and materials used in the construction of ect cost Term: indirect costs Definition: these are soft cost expenditures (or allowances) that are necessary components but are not typically part of the construction contract. Term: entrepreneurial incentive Definition: a market-derived figure that represents the amount an entrepreneur expects to receive for providing coordination and expertise with the development of a project including associated risk. Term: entrepreneurial profit Definition: a market derived historical figure that represents the amount an entrepreneur receives for his or her contribution to a project and risk - and can be used to estimate entrepreneurial incentive. Term: what is generally not included in the rates provided by professional cost service providers? Definition: entrepreneurial incentive Term: what is the most commonly used cost-estimating method? Definition: comparative-unit method Term: What is the comparative unit method used for? Definition: to derive a cost estimate in terms of dollars per unit of area or volume based on known costs of structures similar in quality and design that are adjusted for market conditions, geographic, location, and physical differences. Term: unit-in-place method Definition: the total building cost is estimated by adding together the unit costs for the various building components as installed Term: quantity survey method Definition: the quantity and quality of all materials used and all categories of required labor are estimated and unit cost figures are applied to arrive at a total cost estimate for labor and materials Term: cost-index trending Definition: not a true cost estimating method such as those previously mentioned, but it can be a useful tool when property applied by an appraiser. Term: Gross Living Area (GLA) Definition: The total area of finished, above-grade residential space; calculated by measuring the outside perimeter of the structure and includes only finished habitable, abo e grade liv ing space. Finished basements and attics are not generally included. Term: How are detached residential structures measured? Definition: using exterior dimensions Term: How are attached residential structures measured? Definition: to the center point of the party wall Term: How are condominium units measured? Definition: based on interior dimensions of the units overal perimeter shell Term: Gross building area (GBA) Definition: the total floor area of a building, including below-grade space but excluding unenclosed areas, measured from the exterior of the walls. Gross building area for office buildings is computed by measuring to the outside finished surface of permanent outer building walls without any deductions. All enclosed floors of the building including basements, mechanical equipment floors, penthouses, and the like are included in the measurement. Parking spaces and parking garages are excluded. Term: Gross leasable area (GLA) Definition: The total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines, and measured from the center of interior partitioning to the outside wall surfaces; the standard measure for determining the size of shopping centers where rent is calculated based on the GLA occupied. The area for which tenants pay rent. Term: Net rentable area (NRA) Definition: The amount of space on which the rent is based; calculated according to local practice. Term: what are the three types of accrued depreciation? Definition: external obsolescence, functional obsolescence, and physical deterioration Term: labor and materials are an example of what kind of cost? Definition: direct Term: A buyer will not pay more for a property than the cost to construct one of equal desirability and utility without undue delay. What principal does this illustrate? Definition: substitution Term: what are the 5 categories of climates in the US? Definition: severe-cold, cold, mixed-humid, hot-humid & hot-dry/mixed dry Term: Mr. Chatworths residence is on the historic register, and he wants to know the insurable vale. What type of cost should the appraiser use? Definition: Reproduction cost Term: What area is included in gross living area? Definition: finished floor areas above-grade Term: Because of the unique attributes of the cost approach, it is ideally suited for what? Definition: estimating insurable value Term: Condon has estimated the cost of excavation, the floor, the wall and roof components, and the packaged costs for the electrical, heating, and plumbing. What cost method is Condon using? Definition: unit-in-place Term: What is the predominant type of frame construction used after WWII? Definition: platform Term: An appraiser observes that the distance between a private sewage systems drain field and the water well does not meet the minimum requirements. What component of a building does this fall under? Definition: plumbing Term: What type of foundation is likely to be found in housing that is regularly exposed to ocean surges and localized flooding? Definition: pier foundation Term: An earth-sheltered dwelling would be placed into which of the following categories of housing design? Definition: specialized Term: Class A Frame Definition: structural steel columns and beams. Fireproofed with masonry, concrete, plaster, or other noncombustible material Term: Class A Floor Definition: concrete or concrete on steel deck and fireproofed Term: Class A Roof Definition: formed concrete, precast slabs, concrete or gypsum on steel deck, and fireproofed Term: Class A walls Definition: nonbearing curtain walls, masonry, concrete , metal and glass panels, stone, steel studs and masonry, tile or stucco, etc. Term: Class C frame Definition: masonry or concrete load-bearing walls with or without plasters. This can include tilt-up construction. The curtain walls are masonry, concrete with full or partial open steel, wood or concerte frame. Term: Class C floor Definition: wood or concrete plank on wood or steel floor joists. The floor can also be concrete slab on grade Term: Class C roof Definition: wood or steel joists with wood or steel deck. Also concrete plank. Term: Class C walls Definition: Brick, concrete block, or tile masonry, tilt-up, form concrete, nonbearing walls. Term: Low cost quality rating Definition: these buildings are generally constructed to minimum code requirements often with little regard for architectural appearance or amenities. Term: Average quality rating Definition: These buildings constitute the largest group of buildings constructed, approximately fifty percent of all buildings. Buildings are generally designed for maximum economic potential. They comply with standard code construction and have simple ornamentation and finishes. Term: Good quality rating Definition: these buildings are designed for good appearance, comfort, and convenience, as well as an element of prestige. Ornamentation treatment is usually of higher quality and interiors are designed for upper class rentals. Term: Excellent quality rating Definition: these are sometimes referred to as prestige buildings. On an economic basis, part of the cost must be written off to pride of ownership and some of the income intangibility derived from advertising. Excellent dwellings are generally built for the established professional or those with higher incomes and will have some degree of expensive finishes and fixtures. Term: Physical deterioration Definition: slow destruction (wear and tear) of the structural components that goes on every day, from the moment a building is completed. Term: What is usually tangible and observable Definition: physical depreciation Term: functional obsolescence Definition: impairment of functional capacity attributed to a particular property according to market tastes and standards. Loss in value from defects in design. Ex. insufficient number of baths, an old-fashioned kitchen, poor layout & design, inadequate heating, lack of closets, or inadequate insulation. Term: external obsolescence Definition: depreciation that comes from the outside the boundaries of the property. It is a loss in vaue from physical or economic causes external to the property. Term: depreciation Definition: a loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvements on the saem date Term: what depreciates? Definition: the improvements not the land Term: book depreciation Definition: In accounting, the amount of capital recapture written off on an owner's books. This is not market derived. It is the bais of deductions for income tax purposes (at a prestated schedule) Term: economic life Definition: the period of time which improvements to real property contribute to property value Term: remaining economic life Definition: the estimated period during which improvements will continue to contribute to property value Term: actual age Definition: the number of years that have elapsed since construction of an improvements was completed; also called historical or chronilogical age Term: effective age Definition: the age of property that is baed on the amount of observed deterioration and obsolescence it has sustained, which may be different from its chronological age Term: market extraction method Definition: this method relies on the availability of comparable sales from which you can extract the depreciation Term: age-life method Definition: depreciation from all sources is grouped together in a lump-sum amount that is derived through the use of a ratio applied to the current cost of the structure Term: breakdown method Definition: the total loss in the value of the property is estimated by analyzing and measuring each cause of depreciation (physical, functional, and external) separately. Term: what method of depreciation produces an estimate of total depreciation and cannot be broken down into categories of physical, functional, or external? Definition: age-life method Term: useful life Definition: the period of time over which a structure may reasonably be expected to perform the function for which it was designed. Term: remaining useful life Definition: the estimated period during which improvements will continue to property value; an estimate of the number of years remaining int he useful life of the structure or structural components as of the date of the appraisal; used in the breakdown method of estimating depreciation. Term: curable physical depreciation Definition: relatively minor items that are normally taken care of in the course of regular maintenance. These items are often referred to as deferred maintenance Term: incurable physical deterioration Definition: items of deterioration that cannot be practically or economically corrected as of the effective date Term: short-lived items Definition: components that have an expected useful life that is shorter than that of the entire structure. Exampeles include roof cover, boiler, carpeting, and appliances Term: long-lived items Definition: building components expected to have the same useful life as the entire structure. Examples include rafters, framing studs, and foundation walls. Term: what are the three categories of curable curable functional obsolescence? Definition: deficiency requiring addition, deficiency (defect) requiring substitution or modernization, super-adequacies Term: what are the two categories of functional obsolescence Definition: deficiencies & super-adequacies Term: curable functional obsolescence Definition: the cost of replacing the outmoded or unacceptable component must be the same as or less than the anticipated increase in value. Term: incurable functional obsolescence Definition: the cost of replacing the outmoded or unacceptable component is more than the anticipated increase in value. Term: What are the economic principles that affect land value? Definition: anticipation, change, supply & demand, substitution, balance, and externalities Term: transferrable development right Definition: a development right that cannot be used by the landowner, or that the owner chooses not to use, but can be sold to landowners in another location. Term: What are the six procedures for analyzing and deriving a land value opinion? Definition: sales comparison, extraction, allocation, land residual, ground rent capitalization, subdivision development (glades) Term: elements of comparison Definition: the characteristics or attributes of properties and transactions that cause the prices of real estate to vary Term: plottage Definition: the increment of value created when two or more sites are combined to produce greater utility. The process that creates plottage is called assemblage. Term: units of comparison Definition: the comp for purposes of comparison, e.g., price per square foot, front foot, cubic foot, room, bed, seat, apartment unit Term: number of adjustments Definition: generally the fewer the adjustments the more comparable the property Term: gross adjustments Definition: the total dollar amount of adjustments regardless of whether they are positive or negative Term: net adjustments Definition: the net dollar amount after all plus and minus adjustments have been applied Term: amount of available data Definition: affects the overall reliability of the approach Term: extraction Definition: a method of estimating land (or site) value in which the depreciated cost of the improvements on the improved property is estimated and deducted from the total sale price to arrive at an estimated sale price for the land; ice for the land; most effective when the improvements contribute little to the total sale price of the property. Term: allocation Definition: 1. the general process of separating value between the component parts of a property. 2. A method of estimating land value in which sales of improved properties are analyzed to establish a typical ratio of land value to total property value and this ratio is applied to the property being appraised or the comparable sale being analyzed. Term: land residual technique Definition: a method of estimating land value in which the net operating income attributable to the land is isolated and capitalized to produce an indication of the land's contribution to the total property. Term: ground rent capitalization Definition: a method of estimating land value that is applicable when the ground rent corresponds to the owner's interest in the land, the leased fee interest; applied by capitalizing ground rent at a market-derived rate. This method is useful when comparable rents, rates, and factors can be developed from an analysis of sales of leased land. Term: subdivision development method Definition: a method of estimating land value when subdivision and development are the highest and best use of the parcel of land being appraised. When all direct and indirect costs and entrepreneurial incentive are deducted from an estimate of the anticipated gross sales price of the finished lots (or residences), the resultant net sales proceeds are then discounted to present value at a market-derived rate over the development and absorption period to indicate the value of the raw land. Term: Which land valuation procedure requires a cost estimate of the improvements for each of the comparable sales? Definition: extraction Term: assemblage is the process of combining two or more sites in order to produce greater utility. The increment of a value created from assemblage is called? Definition: Plottage Term: Components into which a property may be divided for purposes of comparison are called? Definition: units of comparison Term: What is the preferred method of site valuation when adequate data is available Definition: sales comparison Term: sales comparison approach Definition: a set of procedures in which a value indication is derived by comparing the property being appraised to similar properties that have been sold recently, then applying appropriate units of comparison and making adjustments to the sale prices of the comparables based on the elements of comparison. Term: arm's length transaction Definition: a transaction between unrelated parties under no duress Term: what unit of comparison is used in the appraisal of a hotel Definition: price per guest room Term: which type of market would provide the best market conditions for an appraiser to employ the sales comparison approach Definition: active market Term: a buyer paid more for a property because he was uninformed about the cost to petition for a zoning change. What element of comparison would this fall under/ Definition: expenditure made immediately after purchase Term: what does grandfathered use mean? Definition: a use that is nonconforming to the current zoning, but is permitted Term: paired data analysis Definition: two or more sales are compared to derive an indication of the size of the adjustment for a single characteristic Term: what is the property sequence of adjustments in sales comparison:? Definition: property rights conveyed, financing terms, conditions of sale, market conditions, location and physical characteristics Term: the part of the valuation process that uses experienced judgment and results in a value opinion is called what? Definition: reconciliation Term: an appraiser used cost-related indicators to derive an adjustment, which is considered what type of adjustment technique Definition: quantitative technique Term: comparable sales are adjusted to the subject as the base, except financing which is adjusted to what? Definition: the market Term: an appraiser has selected two sale properties that are alike except for one feature. Comparing the two sales to derive a market adjustment for the feature is called what? Definition: Paired data analysis Term: an appraiser has adjusted a comparable sale to the subject because it sold 12 months ago. In this instance, what is the adjustment for? Definition: market conditions Term: reconciliation Definition: the last phase of any valuation assignment in which two or more value indications derived from market data are resolved into a final value opinion, which may be either a final range of value or a single point estimate. Term: reconciliation criteria Definition: the criteria that enable an appraiser to form a meaningful, defensible conclusion about the final value opinion. Value indications are tested for the appropriateness of the approaches and adjustments applied, the accuracy of the data, and the quantity of evidence analyzed. Term: final value opinion Definition: the range of value or single dollar figure derived from the reconciliation of value indications and stated in the appraisal report Term: point estimate Definition: a final value indication reported as a single dollar amount Term: range of value Definition: the range, or confidence interval, in which the final market value opinion of a property may fail; usually the range in value is stated as a variable amount between a high and low value limit. Term: probability range Definition: the confidence level associated with a specific value opinion or set of value opinions Term: appraisal report Definition: the written or oral communication of an appraisal; the document transmitted to the client upon completion of an appraisal assignment