America's Real Estate Academy, Inc.

money deposited by a buyer under the terms of a contract, will be forfeited if the buyer defaults, but will be applied to the purchase price if the sale is closed.

is the right that a party or parcel of real estate has to cross or use the land of another.

Easements may affect value and are not always visible. Appraiser should require access to a survey, plat, and complete legal description to minimize the likelihood that an easement or encroachment will be overlooked when attempting to determine value. Common easements include power line, drainage, and underground utility easements.

is the right to use real estate that vests in a person or entity such as a power company or railroad. There is a servient estate but no dominant estate.

For example, an electric company may own an easement across several properties to install power poles and transmission wires. Other common easements in gross are found in utility easements, oil pipeline easement, sewer easements, and drainage easements. Unlike commercial easements in gross, personal easements in gross generally expire with death of the easement holder.

one of the four broad categories of factors affecting the value of real estate, which are - physical, social, economic and governmental. 

Economic factors that affect real estate markets originate at the national level and at the state and local level. From a national perspective the federal government’s monetary and fiscal policies may cause changes in interest rates, inflation, and the cost of housing. On a local level, the availability of high wage employment, financially sound employers, a good economic base, and a community that encourages business development are all favorable factors for real estate markets.

is the period of time a component or structure will contribute value to the property. Every improvement has a physical life and an economic life. Appraisers are concerned with economic life because economic life is tied to value.

An air-conditioning unit may only have an economic life of 5 years before it loses all book value. If it is well maintained, it may be useful for 15 years.

A value loss that occurs because of factors external to the property. Economic obsolescence (sometimes referred to locational, external, or environmental obsolescence) is a value loss associated with detrimental or inharmonious nearby land uses which detract from the subject property’s appeal, utility, marketability, and consequently, its value.

Some common examples:

• Properties adversely affected by take-offs and landings at a nearby airport.
• Properties adversely affected by odors from an adjacent or nearby land fill.
• Properties adversely affected by proximity to noise from highway traffic.

Note that in each instance, the source of the loss in value is outside the boundaries of the property being appraised. Although technically, there may be some instances where economic obsolescence may be curable, it is generally considered to be incurable.

is the apparent or relative age of a component or structure. Effective age may the same as actual or chronological age, but it may also be different.

A house that has an actual age of five years may only have an effective age of two years if the house were well-maintained, updated, and redecorated to stay current. In other words, the five year-old house may compete with houses that are only two years old because the improvements have been kept current.

is the single date (point in time) for which the value estimate is effective and it is valid for that one day (point in time) only. Real estate markets are constantly changing and factors affecting value are dynamic. The effective date establishes the economic framework in place on the valuation date and is necessary to make the value estimate valid. The effective date of an appraisal can be for sometime in the past (retrospective), a current date, or some date in the future (prospective) – relative to the date of the report. The effective date is determined by the client. A common retrospective appraisal would be for an estate appraisal and the effective date is usually the date of death. If the property was repaired after the death or the area went through some changes the appraiser must factor in those elements to determine the accurate value on the effective date.

is a realistic estimate of the actual gross income for an income producing property because it provides an allowance for vacancy and collection losses.

The EGI is equal to the potential gross income (PGI) minus the appropriate vacancy and collection losses for the type of property.

Efficient markets adjust prices quickly to changes in supply and demand. Efficient markets tend to have the characteristics of a theoretical “perfect market.”