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Market Value
The price a willing seller will sell for and a willing buyer will pay when neither is acting under exceptional pressure - most probable price
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Value
An estimate of the future benefits to be derived from a property
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Price
What one must pay for a property - usually very close or equal to market value
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Cost
An estimate of past expenditures
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D.U.S.T.
The four basic characteristics of value - Demand, Utility, Scarcity, Transferablitity
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CMA
Competitive market analysis - a range of value for a property provided by a licensee to help a seller determine a realistic price - also called comparative market analysis
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BOV
Broker's opinion of value - similar to a CMA but used by a relocation firm, bank or attorney - also called BPO - broker's price opinion
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Appraisal
An opinion of value
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Market Data Approach
An appraisal used primarily on residential properties - it involves comparing the subject property to recent sales to determine a value - also called sales comparison approach
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Comparable
A recently sold property similar to a property being valued
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Income Approach
An appraisal used to determine the value of a property that produces income or rent - (net annual income = rate of return x market value) - also called capitalization method
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Capitalization
The conversion of income into an indication of value
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Capitalization Rate
The rate of return on an income producing property
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Net Annual Income
Yearly gross rents less gross expenses
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GRM
A factor based on location and rent - a price per monthly rent used to give an initial estimate of value for a residential rental property
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GIM
A factor based on location and rent - a price per annual rent used to give an initial estimate of value for a commercial property
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Cost Approach
An appraisal used to determine the value of unique property - one with no comparables and no income (Land + Building Reproduction Cost - Depreciation = Value) or (Land + Building Replacement Cost - Depreciation = Value)
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Reproduction Cost
The cost to exactly duplicate a building
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Replacement Cost
The cost to build a building of similar size and purpose using today's methods and materials
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Physical Deterioration
Depreciation due to ordinary wear and tear - curable - little impact on an appraisal
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Functional Obsolescence
Depreciation due to factors in the property that do not meet the expectations of buyers
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Economic Obsolescence
Depreciation due to factors outside the property also called external obsolescence or environmental obsolescence
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Highest and Best Use
The legal use of property giving the greatest return in money or amenities
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Principle of Substitution
No person is justified in paying more for a property when a similar property can be purchase for less - sets an upper limit on price
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Principle of Conformity
Maximum value is found when there is a reasonable degree of similarity or homogeneity
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Principle of Increasing and Decreasing Returns
Invest in property whenever each dollar invested will return a dollar or more of increased value and stop when each dollar invested returns less than a dollar in value - do not over-improve a property
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Principle of Contribution
The value of a part is determined by its contribution to the total value of the property rather than by the cost of the part
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Principle of Regression
Lower valued properties in the neighborhood lead to a decline in value of a subject property
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Principle of Progression
Higher valued properties in the neighborhood lead to an increase in value of a subject property
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Principle of Competition
Increased competition results in decreased profits for current providers
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Principle of Change
Appraisers must make adjustments for changes in market conditions and time
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Principle of Anticipation
Pricing today based on the expectation of future appeal and/or benefits
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Assemblage
Combining several parcels of land into one larger tract
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Plottage
The increased value resulting from the combining of several parcels of land into one larger tract
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Reconciliation
The final step in the appraisal process using weighted averages to determine an exact number
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USPAP
Uniform Standards of Professional Appraisal Practice - appraiser's rule
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Chronological Age
The actual age of a property
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Effective Age
The condition of a property measured in years
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Deferred Maintenance
Postponed maintenance on property that results in increased physical depreciation (wear and tear)
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Life Cycle
The stages of growth and development of a community - grow, stabilize, decline and revitalize
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Up and Coming Neighborhood
A neighborhood in the revitalization stage of the life cycle
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Square Footage
The finished space of a structure measured by the exterior walls
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Gross Area
The area of a building under the roof - includes unfinished areas
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Setback
The amount of space required between the lot line and the building line
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Straight Line Method
Depreciation of equal annual installment amounts
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Depreciated Value
Original cost less the depreciation
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Module
A unit of prefabricated housing - offsite construction
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Collateral
Something of value pledged as security for a loan
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M.A.I.
Member, Appraisal Institute - a designation earned by a licensed appraiser
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