Urban Exam - Appraisal Terminologies

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Method of finding land value in which all improvement costs (less
Abstraction depreciation) are deducted from sales price. Also called *extrac-
tion*.
The number of years elapsed since the original structure was built,
Actual Age
sometimes referred to as historical or chronological age.
A method of computing accrued depreciation in which the cost of
Age-life method of depreciation a building is depreciated at a fixed annual percentage rate; also
called the *straight-line method*.
The principle that the purchase price of property is affected by the
Anticipation
expectation of its future appeal and value.
An estimate of quantity, quality, or value; the process through
Appraisal which conclusions of property value are obtained; also refers to
the report setting forth the process of estimating value.
Cost, Income, Market The approaches used in the appraisal of the real property.
An appraiser's written opinion to a client of the value south for the
Appraisal Report subject property as of the date of appraisal, giving all details of the
appraisal process.
A transaction in which both buyer and seller act willingly and under
no pressure, with knowledge of the present conditions and future
Arm's Length Transaction potential of the property, and in which the property has been
offered on the open market for a reasonable length of time and
there are no unusual circumstances.
The appraisal principle that states that the greatest value of a
Principle of Balance property will occur when the type and size of the improvements
are proportional to each other as well as to the land.
A method of developing a discount rate based on
(1) the rate of mortgage interest available,
(2) the rate of return required on equity, and
Band of Investment
(3) the debt and equity share in the property.
A variation of this method is used to compute an overall capital-
ization rate
Building Capitalization Rate The sum of the discount and capital recapture rates for a building.
Building Residual Technique
A method of capitalization using net income remaining to building
-
after interest on land value has been deducted.
(NOI - interest)
The process employed in estimating the value of a property by
Capitalization the use of an appropriate capitalization rate and the annual net
operating income expected to be produced by the property.
The percentage rate applied to the income a property is expected
to produce to derive an estimate of the property's value; includes
Capitalization Rate
both an acceptable rate of (yield) and return of the actual amount
invested (recapture)
The return of an investment; the right of an investor to get back the
Capital Recapture amount invested at the end of the term of ownership or over the
productive life of the improvements.
The principle that no physical or economic condition ever remains
Principle of Change
constant.
Comparables Properties that are substantially equivalent to the subject property.
The principle that a successful business attracts other such busi-
Principle of Competition
nesses, which may dilutes profits.
The principle that buildings should be similar in design, construc-
Principle of Conformity tion, and age to other buildings in the neighborhood to enhance
appeal and value.

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Urban Exam - Appraisal Terminologies
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The principle that any improvement to a property, whether to va-
Principle of Contribution cant land or a building, is worth only what it adds to the property's
market value, regardless of the improvement's actual cost.
The process of estimating the value of a property by adding the
appraiser's estimate of the reproduction or replacement cost of
Cost Approach
property improvements, less depreciation, to the estimated land
value.
Curable Depreciation A depreciated item that can be restored or replaced economically
Provisions in a deed limiting the future uses of the property. Deed
restrictions may take any forms: they may limit the density of
buildings, dictate the type of structures that can be erected, and
Deed of Restrictions
prevent buildings from being used for specific purposes or used
at all. Deed restrictions may impose a myriad of limitations and
conditions affecting the property rights appraised.
The statistical study of human populations, especially in reference
to size, density and distribution. Demographic information is of
Demography particular importance to people involved in market analyses and
highest and best use analyses in determining potential land uses
of sites.
For appraisal purposes, loss in value due to any cause including
DEPRECIATION physical deterioration, functional obsolescence, and external ob-
solescence.
The period of time during which a structure may reasonably be
ECONOMIC LIFE expected to perform the function for which it was designed or
intended.
The age of a building based on the actual wear and tear and
EFFECTIVE AGE
maintenance, or lack of it, that the building has received.
A building, wall, or fence that extends beyond the land of the owner
ENCROACHMENT and illegally intrudes on land of an adjoining owner or a street or
an alley.
Loss of value from forces outside the building or property, such as
changes in optimum land use, legislative enactments that restrict
EXTERNAL OBSOLESCENCE
or impair property rights, and changes in supply-demand relation-
ships
The greatest possible estate or right of ownership of real property,
Absolute Ownership continuing without time limitation, sometimes called fee or fee
simple absolute.
Defects in a building or structure that detract from its value or mar-
ketability, usually the result of layout, design, or other features that
FUNCTIONAL OBSOLESCENCE
are less desirable than features designed for the same functions
in newer property.
A lease of land only on which the lessee usually owns the building
or is required to build as specified by the lease. Such leases are
GROUND LEASE
usually long- term net leases; the lessee's rights and obligations
continue until the lease expires or is terminated for default.
Rent paid for the right to use and occupy land according to the
GROUND RENT
terms of a ground lease.
The legally and physically possible use of land that is likely to
produce the highest land (or property) value, it considers the
HIGHEST AND BEST USE
balance between site and improvements as well as the intensity
and length of uses.
The process of estimating the value of an income-producing prop-
INCOME CAPITALIZATION APPROACH erty by capitalization of the annual net operating income expected
to be produced by the property during its remaining economic life.

INDEX METHOD

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 Urban Exam - Appraisal Terminologies
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An appraisal technique used to estimate reproduction or replace-
ment cost, the appraiser multiplies the original cost of construction
by a price index for the geographic area to allow for price changes.
LEASED FEE The lessor's interest and rights in the real estate being leased.
The lessee's right to possess and use real estate during the
LEASEHOLD ESTATE term of a lease. This is generally considered a personal property
interest.
A rate of investment return derived by comparing the net income
Overall Capitalization
and sales prices of comparable properties.
An improvement to property that is more than warranted by the
OVER IMPROVEMENT property's highest and best use and thus not likely to contribute
its cost to the total market value of the property.
A lease commonly used for commercial property that provides
for a rental based on the tenant's gross sales at the premises. It
PERCENTAGE LEASE
generally stipulates a base monthly rental, plus a percentage of
any gross sales exceeding a certain amount.
The subsequent increase in the unit value of a group of adjacent
PLOTTAGE VALUE properties when they are combined into one property in a process
called assemblage.
A method of finding the reproduction cost of a building in which the
QUANTITY SURVEY METHOD costs of erecting or installing all of the component parts of a new
building, including both direct and indirect costs, are added.
The percentage of a property's original cost that is returned to
RECAPTURE RATE the owner as income during the remaining economic life of the
investment.
The number of years of useful life left to a building from the date
REMAINING ECONOMIC LIFE
of appraisal.
The current construction cost of a building having exactly the same
REPLACEMENT COST
utility as the subject property.
The current construction cost of an exact duplicate of the subject
REPRODUCTION COST
building.
The process of estimating the value of property through examina-
tion and comparison of actual
Sales Comparison Approach
sales of comparable properties; also called the direct market com-
parison or market data approach.
Sandwich Lease
-
The ownership interest of a sublease
(a party rents property from the property owner and then subse-
quently leases it out to another tenant)
A method of valuing land to be used for subdivision development,
it relies on accurate forecasting of market demand, including both
Subdivision Development Method forecast absorption (the rate at which properties will sell) and
projected gross sales (total income that the project will produce);
also called the *land development method*.
The basic appraisal premise that the market value of real estate
Principle of Substitution is influenced by the cost of acquiring a substitute or comparable
property.
Principle that the value of a commodity will rise as demand in-
Supply & Demand
creases and/or supply decreases.
An improvement that is less than a property's highest and best
Underimprovement
use.
The value of goods and services in exchange for other goods and
Value in Exchange services, or money, in the marketplace; an economic concept of
market value.

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Urban Exam - Appraisal Terminologies
Study online at https://quizlet.com/_1zey7c
The average selling price of homes in a district can best be
ascertained by:

Assessed value (A. assessed value

B. an appraisal
C. comparative analysis
D. none of the above)
Interest Compensation paid for the use of capital
Your client asked you to make a simple appraisal of his lot in
Baguio. Based on technical description and inspection of the
(3200 x 9000 + 15% + 6% - 10% property, you found out the following:
3200 x 9000 = 28,800,000
+ 28,800,000 x 0.15 Land area - 3,200 sq.m.
+ 28,800,000 x 0.06 Unobstructed view (plus) -15%
- 28,800,000 x 0.10) Plottage Value (plus) - 6%
= 31,968,000 Ave price of land - P9,000 per sq.m.
Topography (minus) - 10%
What is the market value of the property?
Market Price The price of any commodity in its market at a specified time
Conclusion An estimate or an opinion of the value
Several houses valued at P1,000,000.00 and P2,000,000.00 were
built in an area where an existing house valued at P3,000,000.00
Progression is located. As a result, the value of the latter increased. The real
estate principle of value that applies to this situation is called the
principle of

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