Vocab And Definition

Please Read Chapters 1-4 for the Week and Develop Definitions for the following terms.  You may write these definitions into a Word Document and submit.  The point of doing this is to process while you read and create your own study tool.  I don’t accept cut and paste, use ONLY YOUR OWN WORDS.

Please check the attachments for the textbook and example.

Appraisal- (ex. “the act or process of developing an opinion of value of an asset, expressed in terms of money.”)

Real Property

Personal Property

Differentiate between real property and real estate

Bundle of rights

Intangible Assets

4 public restriction on real estate (taxation, eminent domain, police power and escheat defined)

Fee Simple

Freehold

Leasehold

Leased Fee

Private Limitation of Rights

Name five values an appraisal may address

Name four uses of an appraisal

Name the Four Agents of Production

Attributes of Land (there are 5)

What Factors influence Land Use decisions-Physical, Legal, Economic and Social

Define an easement

Differentiate between private and public ownership

What are the four agents of production (wealth)?

What are the required Factors of Value (there are four)

Price, Cost and Value

Anticipation and Change

Depreciation

Kinds of Depreciation

Substitution

Balance

Principal of Contribution

Interim Use

Positive and Negative Externalities

Valuation Process

Three Approaches to Value

Steps in an appraisal-Identify, Determine, Do-explain

Highest and Best Use

Reconciliation

Week 1 Vocab and Def

Appraisal- pages 1&2.

Appraisal is an opinion of value.

 

Real Property- page 3.

Real property includes land, structures built by humans, any natural stuff that is attached to the land, such as grass and trees, and the owner’s bundle of rights in the real estate.

 

Personal Property- page 5.

Personal property includes any movable property, and it could be both tangible or intangible.

 

Differentiate between real property and real estate- pages 3&4.

 

The difference between real property and real estate is that real property includes real estate and the rights the owner possesses in their real estate ownership; however, real estate only includes land and anything that is permanently attached to the land.

 

Real property includes real estate and also other interests and rights the owner possesses in ownership. For real estate, it only includes land and anything attached to it by nature and humans.

 

Bundle of rights- page 4.

Bundle of rights is the private interest that a real estate owner possesses. It includes possession, control, disposition, enjoyment, and exclusion.

 

Intangible Assets- page 5.

Intangible assets are assets with values but do not physically exist and are not touchable.

 

4 public restrictions on real estate (taxation, eminent domain, police power, and escheat defined)-page 4.

  1. Police power: Government has the right to create laws and rules to regulate the use of land for public welfare.
  2. Eminent Domain: Government has the right to take over a person’s real property if it is necessary and is for the public benefit.
  3. Taxation: Government has the right to tax the owner’s property for government income. If the tax is not paid, the government will take over a person’s real property.
  4. Escheat: Government has the right to take over a person’s real property if he/she dies with no heirs.

 

Fee Simple-  

Fee simple means that the owner possesses absolute ownership of the real estate, and the estate is inheritable.

 

Freehold- 

Freehold ownership means that the ownership of the real estate, including house and land, exists for infinite time, and the owner has complete ownership.

 

Leasehold-  

In a leasehold, the owner of the property, through an agreement, agrees to lease the house to a lessee for a specific period, and the lessee then possesses the right to use and live in the house (leasehold right).

 

Leased Fee- 

A leased fee means that the owner has the right to lease the property he/she possesses to a lessee and collect fees. When the owner leases the property, he/she has the leased fee ownership.

 

Private Limitation of Rights- page 5. 

Private limitation of rights restricts how the property owner can use the property and how the ownership can be conveyed.

 

Name five values an appraisal may address- page 6. 

Values an appraisal may address are use-value, investment value, disposition value and liquidation value, assessed value, and fair value.

 

Name four uses of an appraisal- page 7.

Uses for an appraisal include transferring ownership, financing, litigation, and counseling for investments, and decision making.

 

Name the Four Agents of Production- page 18. 

  1. Land
  2. Labor (workers’ production)
  3. Capital (inputs including things such as money and equipment)
  4. Entrepreneurial Coordination ( time and efforts an entrepreneur invests in developing the real estate project)

 

Attributes of Land (there are 5)- page 9. 

  1. Each piece of land is different from the other regarding its location and formation.
  2. Land possesses immovability.
  3. Land lasts for a long time.
  4. There is a limited amount of land.
  5. People use land.

 

What Factors influence Land Use decisions-Physical, Legal, Economic, and Social- pages 10-14.

  1. Physical- Each parcel of land has its own unique geographic and physical characteristics, such as location, and these characteristics affect how each parcel of land is used.
  2. Legal- law governs and makes the use and operation of land organized.
  3. Economic- land has value, can be sold for cash, and is a demonstration of wealth.
  4. Social- Different groups of people have their points of view on how the land should be used and be operated.

 

Define an easement- 

An easement is a right a party gains from another party to use the land.

 

Differentiate between private and public ownership- page 13.

Private ownership: Private ownership refers to properties owned by individuals or groups of people, and it is mostly for personal benefits.

Public ownership: Public ownership refers to properties owned by the government and are existed mostly for public goods and benefits, such as streets and public facilities.

 

What are the four agents of production (wealth)?- page 18. 

  1. Land
  2. Labor (workers’ production)
  3. Capital (inputs including things such as money and equipment)
  4. Entrepreneurial Coordination ( time and efforts an entrepreneur invests in developing the real estate project)

 

What are the required Factors of Value (there are four)- page 19. 

  1. Utility (people’s satisfaction received from the property)
  2. Scarcity (the supply and demand of the property, when demand exceeds supply, it makes the property more valuable)
  3. Desire (people’s wants beyond necessary needs)
  4. Effective purchasing power (people’s ability to purchase the goods and property they want)

 

Price, Cost, and Value- page 21.

Price: The amount of money both seller and buyer agree to accept and pay for a property.

Cost: The amount of money spent to accomplish certain work or pay for certain services.

Value: Value is used differently based on the context. It may be used as the anticipated worth of a property in the future.

 

Anticipation and Change- page 22. 

Anticipation: The value of a property is based on the expected benefits in the future.

Change: The fluctuation of property’s value due to social, economic, and environmental factors.

 

Depreciation- page 17,23.

Depreciation refers to a decrease in the value of a property or improvement.

 

Kinds of Depreciation- page 23.

  1. Functional depreciation: This means the property might have some poorly designed features and outdated facilities, which cause the decrease in value.
  2. Physical depreciation: This means the physical deterioration of the property, and it is usually caused by daily wear and tear.
  3. Economic (external) depreciation: Economic depreciation refers to the decrease in value caused by external factors.

 

Substitution- page 25.

The principle of substitution means when similar goods are provided in the market, the one which has the lowest price will have the largest demand. In real estate, it means when two properties provide the purchaser the same level of utility, the purchaser will choose the one that has a lower price.

 

Balance- page 25.

The principle of balance means when land, labor, capital, entrepreneur coordination, and improvements are all in its economic balance, the property will be at its maximum value, and the value will be maintained.

 

Principal of Contribution- page 26.

Principle of contribution means that a component’s value is determined by the value it adds to the property, not the cost spent on building that component.

 

Interim Use- page 27. 

Interim use refers to the temporary use of a property until it can be used in a different way that maximizes its productivity.

 

Positive and Negative Externalities- page 28. 

Positive and negative externalities mean that factors that exist externally of a property may affect its value positively or negatively. Positive externalities increase the value of the property, and negative externalities decrease the value of the property.

 

Valuation Process- page 29. 

The valuation process includes procedures and steps real estate appraisers take to assess the value of the property.

 

Three Approaches to Value- page 31,36.

Three approaches to values are

  1. Sales comparison approach: Comparing the subject property with other comparable properties which are sold in recent times.
  2. Income capitalization approach: Using capitalization rate and income of the property to estimate the value.
  3. Cost approach: Estimating the current cost of reconstruction of the same building and deducting the accrued depreciation.

 

Steps in an appraisal-Identify, Determine, Do-explain-

  1. Identify the appraisal problems: An appraiser needs to know all the problems during the appraisal process in advance.
  2. Know the scope of work: Determine the amount of work to do and what data to collect.
  3. Collect and analyze data and property information: collecting data needed for the appraisal, such as sales of comparable properties, and performing market analysis, such as demand and supply, and highest and best use analysis, such as improvements.
  4. Determine land value: Estimating the land value.
  5. Apply valuation approach: Three different valuation approaches are applied to evaluate the value of a property.
  6. Reconciliation: the appraiser reviews the figures from the three different valuation approaches and comes up with a final result.
  7. Determine final value: Preparing an official final value report.

 

Highest and Best Use- page 34.

The legal use of land results in the highest productivity and best value of the land.

 

Reconciliation- page 37.

In reconciliation, the appraiser reviews the figures from the three different valuation approaches and comes up with a final value report.

 

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