Real Estate Appraisal Flash Cards - APPRAISAL EXAM SCHOLAR

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Akerson format

A mortgage-equity procedure used to estimate an overall capitalization rate. The procedure substitutes an arithmetic format for the algebraic equation in the Ellwood formula.

land residual technique

A technique used to find property value in the income approach when the value of the building and net operating income are known. The income attributable to the building is subtracted from the net operating income to find the income attributable to the land. This figure is then capitalized and added to the building value to find the total property value.

primary data

Information gathered by the appraiser that is not available in a published source.

quantity survey method

The most comprehensive method of estimating building costs in which the quantity and quality of all materials and labor are estimated on a unit cost basis to arrive at a total cost estimate; it duplicates the contractor's method of developing a bid.

range of value

In an appraisal report, the confidence interval in which the final estimate of a property's value may lie.

terminal capitalization rate

The capitalization rate used to estimate the resale price for a property at the end of a holding period; it equals the estimated net operating income at the time of sale (or one year after the year of sale) divided by the sales price. The NOT for the year following the year of sale is often used when estimating value with a terminal capitalization rate because this is the first year of NOT for the buyer.

Inwood annuity factor

A factor that indicates the present value of a level-payment income stream when multiplied by the periodic payment.

equity dividend

The result of subtracting debt service (principal and interest) from NOI (see net operating income). This will equal before-tax cash flow if there are no other cash outflows.

CPI adjustment

An adjustment used in leases in which the rent payment is periodically adjusted by a percentage of the increase in the Consumer Price Index (CPI); the CPI adjustment is used to help protect the lessor from unexpected increases in inflation.

present value (PV)

The current worth of a payment or payments based on the time value of money; future payments are discounted to an equivalent current value by a discount rate based on the premise that cash flows received sooner are more valuable than cash flows received later.

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