Legal Terms in Real Estate -Terminologies & Words(D3)
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D3. Value of the Property
142. Fair Market Value (FMV)
Fair market value is the reasonable selling price of the property in an open and competitive market, where the seller and buyer have a good amount of knowledge about it. This is the price that a buyer would likely pay for the property and the seller would make the trade without any pressure.
143. Appreciation
The increase in the value of a property over a period of time depending on various factors like market demand and supply, location improvements, area development, or interest rates. Currently the average annual property appreciation rate in India in 6%, which differs significantly from city to city.
144. Depreciation
The annual decrease in the value of a property over time because of wear and tear, age, or adverse changes in the neighbourhood or local economy. According to the Income Tax Act, depreciation rate for residentials buildings is set at 5% whereas commercial buildings are applicable for a depreciation of 10%.
145. Real Estate Appraisal
Real Estate Appraisal, also known as property valuation, is the process of estimating the true market value or price of a property, often conducted by a professional certified appraiser in an unbiased manner.
146. Assessed Value
The valuation placed on a property by a public tax assessor based on which the appropriate taxes are levied on it. It is usually an estimated value of the property after considering the overall condition of the property, location, square footage, amenities or features, etc., in comparison to similar properties.
147. Capitalization Rate (Cap Rate)
Capitalization rate (Cap rate) is a real estate valuation standard that compares different real estate investments and roughly determines the potential return on an investment. [Cap Rate = Net Operating Income ÷ Current Market Value]
148. Capital Gain
Capital Gain is the profit made from selling an asset (like real estate property) for more than what you originally paid.
149. Capital Loss
Capital Loss is the loss incurred when an asset (like real estate property) is sold for less than its purchase price.
150. Economic Obsolescence
Economic Obsolescence is the decrease in property value due to external factors like changes in the economy, increase crime rates in the area, or new zoning regulations, etc.
151. Liquidity
Real Estate Liquidity is used to describe how quickly an asset, like real estate, can be converted into cash or sold without affecting its market price.
152. Net Operating Income (NOI)
Net Operating Income (NOI) is used to calculate the profitability of a particular investment, excluding mortgage payments. [NOI = Revenue generated by the property – Operating Expenses]
153. Replacement Cost
Replacement Cost is the cost to be paid to replace an existing property or asset with a similar asset of similar quality and functionality, at the current market price.
154. Title Insurance
Title Insurance is an insurance policy that protects home buyers against any loss caused due to defects in the title to a property.
Courtesy: ASSURE SHIFT
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