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601 VESTAVIA PKWY, VESTAVIA, AL. 35216
(205) 822-9322
Appraisal & Valuation
Chapter 12 — Appraisal & Valuation
Tap or click a card to flip it.
Annual Net Operating Income (NOI)
The annual profit generated by a property after subtracting expenses from the income produced.
Anticipation
The principle of value that purchasing real property today is done with the expectation of profit or gain in the future.
Appraisal
An opinion of value based on supportable evidence and approved methods, typically required for properties pledged as collateral for a loan; its purpose is to determine market value.
Broker’s Price Opinion (BPO)
A less expensive alternative often used by lenders to evaluate commercial properties, usually completed by a licensee.
Capitalization rate (“cap rate”)
A percentage indicating how quickly an investor will regain the amount of money invested into a property.
Change
The principle of value that no physical or economic condition remains constant; mainly the result of cause and effect.
Comparables (“comps”)
Recently sold properties with similar characteristics (square footage, year built, construction, location, date of sale, etc.) compared to the subject property in the sales comparison approach.
Comparative market analysis (CMA)
A report based on recently sold properties, current listings, and expired listings in the area, normally completed by a real estate agent for sellers and buyers.
Competition
The principle of value that occurs when one business tries to win over another business’s customers by offering different products, better deals, or other means.
Conformity
The principle of value created and sustained when real estate characteristics are similar; e.g., CC&Rs in subdivisions help maintain property values.
Contribution / Increasing and diminishing returns
The principle that adding improvements can only add so much value; after a point, spending more will not increase value. “More is not necessarily better.”
Cost Approach to value
An appraisal method used for newer or special-use buildings (schools, churches, public buildings) when comparables aren’t available; based on construction cost, depreciation, and land value.
Curable functional obsolescence
A loss of value caused by outdated physical or design features that are economically feasible to repair.
Curable physical deterioration
A form of deterioration that is economically feasible to repair.
Depreciation
The loss in value of an improvement for any reason, considered when estimating value; depreciation applies only to improvements, not to the land.
External obsolescence
An incurable loss of value caused by an outside problem rather than the property itself, beyond the owner’s control.
Functional obsolescence
A loss of value caused by outdated features and poor design; can be either curable or incurable.
Highest and best use
The principle of value meaning the most realistic use that, at the time of appraisal, is most likely to produce the greatest net return over a given period.
Income Approach to value
An appraisal method used to value large income-producing commercial properties (shopping centers, office and apartment complexes) using the NOI and capitalization rate.
Incurable functional obsolescence
A loss of value caused by outdated physical or design features that are not economically feasible to repair.
Incurable physical deterioration
A form of deterioration in which the cost of repairing damage surpasses the value it adds to the structure.
Market price
The actual price a property sold for on the current market.
Market value
The most probable price a property will bring in a fair sale on the current real estate market.
Physical deterioration
The normal wear and tear a building experiences as it ages, affected by original construction quality and ongoing maintenance; can be curable or incurable.
Plottage
The principle of value that merging adjacent lots into one larger lot may produce a higher total value than the sum of the lots valued separately.
Principles of value
Tangible or intangible aspects or factors that affect the value of a property.
Progression
The principle of value that the value of an inferior property increases when located in an area of superior properties.
Reconciliation
The last step in the appraisal process, where the final estimate of value is determined by analyzing and weighing the findings from the three approaches to value.
Regression
The principle of value that the value of a superior property is affected adversely by the presence of lesser-quality property.
Sales Comparison Approach to value
An appraisal method used to value residential homes in older established neighborhoods by comparing the subject property to recently sold similar properties (comps).
Subject property
The property for sale that is being appraised using the sales comparison approach to value.
Supply and demand
The principle of value explaining the interaction between sellers and buyers of a resource; generally, low supply and high demand create increased price and vice versa.
