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Loss in value resulting from the property’s
physical deterioration, external depreciation (decrease in price), and
The appraisal principle that holds that value
can increase or decrease based on the expectation of some future benefit or
detriment produced by the property.
An estimate of the quantity, quality, or value
of something. The process through which conclusions of property value are
obtained, also refers to the report that sets forth the process of estimation
and conclusion of value.
The combining of two or more adjoining lots into
one larger tract to increase their total value.
an opinion of real estate value commissioned by
a bank or attorney and provided by a broker.
Broker’s Price Opinion (BPO)
The rate of return a property will produce on
the owner’s investment.
The appraisal principle that holds that no
physical or economic condition remains constant.
A comparison of the prices of recently sold
homes that are similar to a listing seller’s home in terms of location, style,
Competitive Market Analysis (CMA)
The appraisal principle that states that excess
profits generate competition.
The appraisal principle that holds that the
greater the similarity among properties in an area, the better they will hold
The appraisal principle that states that the
value of any component of a property is what it gives to the value of the whole
or what its absence detracts from that value.
The process of estimating the value of a
property by adding to the estimated land value the appraiser’s estimate of the
reproduction or replacement cost of the building, less depreciation.
(1) In appraisal, a loss of value in property
due to any cause, including physical deterioration, functional obsolescence,
and external obsolescence. (2) In real estate investment, an expense deduction
for tax purposes taken over the period of ownership of income property.
The number of years during which an improvement
will add value to the land.
Incurable depreciation caused by factors not on
the subject property, such as environmental, social, or economic factors.
A loss of value to an improvement to real estate
arising from functional problems, often caused by age or poor design.
A figure used as a multiplier of the gross
annual income of a property to produce an estimate of the property’s value.
Gross Income Multiplier (GIM)
The possible use of a property that would
produce the greatest net income and, thereby, develop the highest value.
Highest and best use
The process of estimating the value of an
income-producing property through capitalization of the annual net income
expected to be produced by the property during its remaining useful life.
Law that applies when at the point where
additional improvements do not increase income or value.
Law of diminishing returns
Law that applies as long as money being spent on
improvements produces an increase in income or value.
Law of increasing returns
The most probable price property would bring in
an arm’s length transaction under normal conditions on the open market.
The income projected for an income-producing
property after deducting losses for vacancy and collection and operating
Net operating income (NOI)
A reduction in a property’s value resulting from
a decline in physical condition; can be caused by action of the elements or by
ordinary wear and tear.
The increase in value or utility resulting from
the consolidation (assemblage) of two or more adjacent lots into one larger
An appraisal principle that states that, between
dissimilar properties, the value of the lesser quality property is favorably
affected by the presence of the better-quality property.
The final step in the appraisal process, in
which the appraiser combines the estimate of value received from the sales
comparison, cost, and income approaches to arrive at a final estimate of market
value for the subject property.
An appraisal principle that states that, between
dissimilar properties, the value of the better quality property is affected
adversely by the presence of the lesser-quality property.
The construction cost at current prices of a
property that is not necessarily an exact duplicate of the subject property but
serves the same purpose or function as the original.
The construction cost at current prices of an
exact duplicate of the subject property.
A process of estimating the value of a property
by examining and comparing actual sales of comparable properties.
Sales comparison approach
An appraisal principle that states that the
maximum value of a property tends to be set by the cost of purchasing an
equally desirable and valuable substitute property, assuming that no costly
delay is encountered in making the substitution.
The appraisal principle that follows the
interrelationship of the supply of and demand for real estate. Because
appraising is based on economic concepts, this principle recognizes that real
property is subject to the influences of the marketplace as with any other
Supply and demand
A set of standards that details information required
of an appraisal of residential property. The Uniform Residential Appraisal
Report is required by many government agencies.
- Uniform Standards of Professional Appraisal
- Practice (USPAP)
The power of a good or service to command other
goods in exchange for the present worth of future rights to its income or