absorption rate ad valorem appraisal broker price opinion capital gain

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1 absorption rate The estimated time required to sell or lease property within a designated area at its fair market value. ad valorem Real estate taxes imposed on property based on its assessed value. appraisal An individual s opinion of a property s value on a specific date, documented in an appraisal report. broker price opinion An agent s opinion of a property s fair market value based on comparable sales. capital gain At resale of a capital item, the amount by which the net sale proceeds exceed the adjusted cost basis (book value). Used for income tax computations. Gains are called short or long term based upon length of holding period after acquisition. Usually taxed at lower rates than ordinary income.

2 capitalization approach An appraisal method used by an appraiser to arrive at a property s value based on the present worth of a property s future net operating income. comparable sales Sales which have similar characteristics as the subject property and are used for analysis in the appraisal process. Commonly called comparables, they are recent selling prices of properties similarly situated in a similar market. comparison approach A real estate comparison method which compares a given property with similar or comparable surrounding properties; also called market comparison. economic life The period of time over which a property will yield a return on capital invested to own it. economic obsolescence A loss in value of a property due to external factors and not the condition of the property itself.

3 effective age The physical age of a property based on the condition of the structure, distinct from its chronological age. elements of value Factors that must be present for real estate to have value: demand, utility, scarcity and transferability. fair market value (FMV) The price a reasonable, unpressured buyer would pay for property on the open market. financial analysis The consideration of the durability, quantity and quality of income and expenses generated and incurred by an income-producing property. functional obsolescence A loss of value due to adverse factors within the structure which affect the utility of the structure, and thus its value and marketability.

4 gross rent multiplier A number which, times the gross income of a property, produces an estimate of value of the property. Example The gross income from an unfurnished apartment building is $200,000 per annum. If an appraiser uses a gross multiplier of 7%, then it is said that based on the gross multiplier the value of the building is $1,400,000. highest and best use An appraisal phrase addressing the use of a property which is most likely to produce the greatest net return on the land and/or buildings over a given period of time. home energy audit An audit conducted by a Home Energy Rater evaluating the energy efficiency of the home. home inspection A non-invasive examination of the mechanical, electrical and plumbing systems of a dwelling, as well as the components of the structure, such as the roof, ceiling, walls, floors and foundations. income approach One of three methods of the appraisal process applied to income producing property to develop the appraiser s opinion of value.

5 influences on value An aspect of the principle of change, recognizing the effect of physical, economic, government and social changes on real estate value. loan-to-value ratio A ratio stating the outstanding mortgage balance as a percentage of the mortgaged property s fair market value. market comparison An appraisal method used by an appraiser to arrive at a property s value by a comparison of recent sales prices of similar properties, adjusted for differences in the properties. narrative report A summary of all factual materials, techniques and appraisal methods used by the appraiser in establishing the value of a property. This is the most thorough type of appraisal report. opportunity cost The cost of an action that is forgone in choosing to take an alternative action.

6 physical life The total number of years a building is presumed to potentially exist in a productive capacity. principles of value The application of several appraisal principles to arrive at a final value. The basic principle is substitution. quantity survey The most detailed method of the cost approach in appraisal. This is generally done by contractors when bidding a project. reconciliation The final step in the appraisal process. Placing weight on the alternative value conclusions, to arrive at a final value decision. regression, principle of A real estate valuation theory which holds the worth of a greater valued property is negatively affected by the close proximity of numerous lesser valued comparable properties.

7 replacement cost The dollar amount required to replace an improvement at its current value. return on investment A measure of profits in relation to capital invested. site valuation The appraised valuation of the ground (site) separate from any structure (improvement) that may be on the site. unearned incremental increase An increase in the value of the property due to outside influences separate from any action by the property owner. vacancy rate The percentage of a building s space that is not rented over a given period.

8 value The present worth stated in dollars of the future benefits arising out of the ownership of a property. yield The interest earned by an investor on an investment (or by a bank on the money it has loaned). Also, called return.