Appraisal Terminology
Abatement – Abatement is an official reduction or invalidation of an assessed valuation after the initial assessment for ad valorem taxation has been completed; the termination of a nuisance; a reduction in rent levels that a landlord charges a tenant, sometimes brought about by a rent control program.
Absorption Rate – Absorption Rate is the rate at which properties for sale or lease have been or are expected to be successfully marketed sold or leased or given area over duration of time. See also capture rate.
Access Rights- Access Right is the right of ingress to and egress from a property that abuts an existing street or highway; an easement in the street that adjoins abutting property; a private right, as distinguished from a public right. See landlocked parcel the right of a riparian owner to pass to and from the waters on which the premises border.
Administrator – Administrator is a person appointed by the court to manage and settle the estate of a deceased person; a representation of limited authority who collects the assets of an estate, pays its debts, and distributes the residue to those entitled. An administrator provides security for the due administration of the estate by entering into a bond with sureties called an administration bond. See executor.
Adverse Possession – Adverse Possession is the actual exclusive, open, notorious, hostile and continuous possession and occupation of the real property under an evident claim of right or title. The time required to obtain legal title by adverse possession varies from state to state.
Allocation – Allocation is a method of estimating land value in which sales of improved properties are analyzed to establish a typical ration of land value to total to the property being appraised or the comparable sale being analyzed.
Amortization – Amortization is the process of retiring a debt or recovering a capital investment, typically through scheduled, systematic repayment of the principal; a program of periodic contributions to a shrinking fund or debt retirement fund.
Anticipation – Anticipation is the perception that value is created by the expectation of benefits to be derived in the future.
Appraisal – Appraisal is the act or process of developing an opinion of value; an opinion of value.
Appraisal Consulting – Appraisal Consulting is the act or process of developing an analysis, recommendation, or opinion to solve a problem, where an opinion of value is a component of the analysis leading to the assignment results.
Appraisal Management Company (AMC) a private firm that serves as a conduit between the intended user of an appraisal or appraisals, and the parties conducting appraisals for a fee.
Appraisal Practice – Appraisal Practice valuation services performed by an individual acting as an appraiser, including but not limited to appraisal, appraisal review, or appraisal consulting.
Appraiser – An Appraiser is one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective. See also Professional Property Valuer in the IVS Glossary in the Addenda.
Appraisal Report – Appraisal Report is the written or oral communication of an appraisal.
Assemblage – Assemblage is the combining of two or more parcels, usually but not necessarily contiguous, into one ownership or use; the process that may create plottage; the combining of separate properties into units, sets or groups, i.e., integration or combination under unified ownership.
Assignment – Assignment is a written transfer of the rights of use and occupancy of a property to be held by another legal entity or to be used for the benefit of creditors, e.g., assignments of mortgages, sales contracts, and leases.
Capital Recapture- Capital Recapture the return of an investment as distinguished from the return on an investment. Invested capital may or may be recaptured all or in part through liquidation of the property at the termination of the investment. See capital recovery.
Capital Recovery – Capital Recovery is the return to investors of that portion of their property investment expected to be lost over the income projection period. Capital recovery may be viewed in either a physical sense, as reflected in the traditional physical techniques of capitalization, or in a financial sense as reflected in mortgage-equity analysis. Capital recovery is not interchangeable with the term depreciation. See also capital recapture.
Capture Rate – The estimated percentage of the total potential market for a specific type of property (e.g., office space, retail space, single-family homes) that is currently absorbed by existing facilities or is forecast to be absorbed by proposed facilities. For example, the capture rate of a retail center depends on the size of its trade area, the anchor tenants in the facility, competition within the trade area, and the relative position of the subject facility compared to the competition. Short-term capture is referred to as absorption; long-term capture is referred to as share of the market.
Caveat Emptor – Caveat Emptor let the buyer beware; a maxim of the common law stating that the buyer purchases at his or her own risk.
Comparables – Comparables a shortened term for similar property sales, rentals, or operating expenses used for comparison in the valuation process. In best usage the thing being compared should be specified, e.g.
Compulsory Acquisition/Purchase – In accordance with statutory procedures and practices, the government’s taking of private property for public use upon the payment of compensation as provided for by statute. The term compulsory acquisition/purchase is Commonwealth usage. The terms condemnation and damages are used in North America.
Condemnation – The act or process of enforcing the right of eminent domain. See also eminent domain. See also Compulsory Acquisition/Purchase and Condemnation in the IVS Glossary in the Addenda.
As defined in the IVS Glossary – The act or process of enforcing the right of eminent domain. In condemnation, the loss in value to the remainder, resulting from a partial taking, is known as damages. The terms condemnation and damages are North American usage.
Condominium –A form of ownership in which each owner possesses the exclusive right to use and occupy an allotted unit plus an undivided interest in common areas; A multiunit structure or a unit within such a structure, with a condominium form of ownership.
Contributory Value – Contributory Value, also referred to deprival value, the change in the value of a property as a whole, whether positive or negative, resulting from the addition or deletion of a property component.
Cost Approach – Cost Approach a set of procedures through which a value indication is derived for the fee simple interest in a property by estimating the current cost to construct a reproduction of (or replacement for) the existing structure including an entrepreneurial incentive, deducting depreciation from the total cost, and adding the estimated land value. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised.
Cost to Cure – Cost to Cure is the cost to restore an item of deferred maintenance to new or reasonably new condition.
Cul-de-sac – Cul-de-sac is a street with one open end and an enlarged turnaround at the closed end.
Curable Functional Obsolescence – Curable Functional Obsolescence is an element of depreciation; a curable defect caused by a flaw in the structure, materials, or design, which can be practically and economically corrected.
Depreciation- In appraising is a loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date; In accounting, an allowance made against the loss in value of an asset for a defined purpose and computed using a specified method.
Deed in Lieu – A deed given by an owner or debtor in lieu of foreclosure by the lender or mortgage. See also foreclosure.
Discount Rate – Discount Rate is a yield rate used to convert future payments or receipts into present value; usually considered to be a synonym for yield rate.
Easement–Easement is the right to use another’s land for a stated purpose. See also Easement in the IVS Glossary in the Addenda.
As defined in the IVS Glossary – Nonpossessory (incorporeal) interest in landed property conveying use, but not ownership, of a portion of that property.
Economic age-life method – The Economic age-life method is a method of estimating depreciation in which the ratio between the effective age of a building and its total economic life is applied to the current cost of the improvements to obtain a lump-sum deduction; also known as the age-life method. See also modified economic age-life method.
Effective Age – Effective Age is the age of the property that is based on the amount of deterioration and obsolescence it has sustained, which may be different from its chronological age.
Effective Date – Effective Date is the date on which the analyses, opinions, and advice in an appraisal, review, or consulting service apply. In the case of a lease, it’s the date upon which the lease goes into effect.
Effective Gross Income (EGI) – Effective Gross Income (EGI) is the anticipated income from all operations of the real property after an allowance is made for vacancy and collection losses and an addition is made for any other income.
Eminent Domain – Eminent Domain is the right of government to take private property for public use upon payment of just compensation. The fifth amendment of the U.S. Constitution (taking Clause) guarantees payment of just compensation upon appropriation of private property.
Encroachment – Encroachment is the trespassing on the domain of another. 2. Encroachment is the partial or gradual displacement of an existing use by another use, for example, moving a commercial to a residential district.
Encumbrance – Encumbrance is any claim or liability that affects or limits the title to property. An encumbrance can affect the title such as a mortgage or other lien, or it can affect the physical condition of the property such as an easement. An encumbrance cannot prevent the transfer of possession, but it does remain after the transfer.
Entrepreneurial Profit – Entrepreneurial Profit is a market-derived figure that represents the amount an entrepreneur receives for his or her contribution to a project and risk; the difference between the total cost of a property (cost of development) and its market value (property value after completion), which represents the entrepreneurs compensation for the risk and expertise associated with development. An entrepreneur is motivated by the prospect of future value enhancement.
Escheat – Escheat is the right of government that gives the state titular ownership of property when its owner dies without a will or any ascertainable heirs.
Escrow – Escrow is the property or evidence of property (E.g. money, securities, instruments) deposited by two or more person with a third person to be delivered under a certain contingency or on the completion of specified terms. An escrow account is generally held to cover taxes and insurance.
Estate – Estate is a right or interest in property. Defines an owners degree, quantity, nature and extent of interest in real property. There are many different types of estates, including freehold (Fee simple, determinable fee, and life estate).
Excess land – Excess Land is land that is not needed to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use pf the improved parcel. Excess land may have the potential to be sold separately and is valued separately. See also surplus land.
Executor – An executor is an individual or other legal person designated in a will to settle the estate of a deceased person. See also administrator.
Exposure Time – Exposure Time is the time a property remains on the market. 2. Exposure time is the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming a competitive and open market.
External Obsolescence – External Obsolescence is an element of depreciation; a diminution in value caused by negative externalities and generally incurable on the part of the owner, landlord, or tenant.
Extraction – Extraction is a method of estimating land value in which the depreciated cost of the improvements on the property is calculated and deducted from the total sale price to arrive at an estimated sale price for the land. 2. A method of deriving capitalization rates from property sale price and net operating income are known.
Fair Market Value – Fair Market Value is a term that is, in concept, similar to market value in general usage; used mainly in condemnation, litigation, income tax, and property tax situations. When an appraisal assignment involves developing an opinion of fair market value, the appropriate requisite and precise definition of the term depends on the use of the appraisal and the applicable jurisdiction.
Fannie Mae – Fannie Mae is a Federal National Mortgage Association (FMNA). A government sponsored enterprise (GSE) created by Congress in 1938 that purchases mortgages from banks, trust companies, mortgages companies, savings and loan associations, and insurance companies to help distribute funds for home mortgages.
Federal housing administration (FHA) Mortgage – Federal housing administration mortgage made in conformity with the requirements of the national housing act and insured by the federal housing administration.
Fee Simple Estate – Fee Simple Estate is the absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat.
FEMA Map – a Flood zone map created by the Federal Emergency Management Agency
(FEMA) sometimes called a FIRM or Flood Insurance Rate Map.
Field Review- Field Review is an appraisal review for which the scope of appraisal work includes inspection of the exterior and sometimes interior of the subject property and possibly inspection of the comparable properties to confirm the data provided in the report. a field review is generally performed using a customized checklist that covers the items examined in a desk review and may also include confirmation of market data, research to gather additional data, and verification of the software used in preparing the report.
Final Reconciliation – Final Reconciliation is the last phase in the development of a value opinion in which two or more value indications derived from market data are resolved into a final value opinion, which may be either a final range of value or a single point estimate.
Forecasting – in appraising, forecasting is to estimate or to indicate in advance. Forecasts made by appraisers are based on past trends and the perceptions of market participants concerning their continuation or alteration.
Foreclosure – The legal process in which a mortgage forces the sale of a property to recover all or part of a loan on which the mortgage has defaulted.
Freddie Mac – Freddie Mac is the Federal Home Loa Mortgage Corporation (FHLMC). A Government-sponsored enterprise (GSE) created by congressional charter in 1970 that buys residential mortgages and funds them in the capital markets in one of two ways: using mortgage backed securities or a variety of debt instruments.
Functional Obsolescence – Functional Obsolescence is the impairment of functional capacity of a property according to the market tastes and standards.
Functionality Utility – Functional Utility is the ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building uses in terms of architectural style, design and layout, traffic patterns and size and type of rooms.
Grantee – A Grantee is a person to whom property is transferred by deed or to whom property rights are granted by a trust instrument or other document.
Grantor – Grantor is a person who transfers property by deed or grants property rights through a trust instrument or other document.
Gross Rent Multiplier – A Gross Rent Multiplier is the relationship or ratio between the sale price or value of a property and its periodic gross rental income.
Highest and Best Use- Highest and Best Use is the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must be meet are legal permissibility, physical and possibility, financial feasibility, and maximum productivity. alternatively, the probable use of land or improved property – specific with respect to the user and timing of the use – that is adequately supported and results in the highest present value.
Hypothetical Condition- Hypothetical Condition that which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the property subject property.
Income Capitalization Approach – Income Capital Approach is a set of procedures through which an appraiser derives a value indication for an income-producing property by converting its anticipated benefits (cash flows and reversion) into property value. This conversion can be accomplished in one of two ways.
Ingress- Ingress a means of entering; an entrance.
Interim Use- Interim Use the temporary use to which a site or improved property is put until it is ready to be put to its future highest and best use.
Joint Tenancy – Joint Tenancy is the concurrent ownership by two or more persons with the right of survivorship.
Leased Fee Interest – Leased Fee Interest is a freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship.
Leasehold Interest – Leasehold Interest the tenant’s possessory interest created by a lease.
Legally Nonconforming Use – A use that was lawfully established and maintained, but no longer conforms to the use regulations of the current zoning in the zone where it is located; also known as a grandfathered us. See also special use permit; variance.
Lessee – Lessee is the one who has the right to occupancy and use of the property of another for a period of time according to a lease agreement.
Lessor- Lessor is the one who conveys the rights of occupancy and use to others under a lease agreement.
Marketing Time – Marketing Time is an opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal.
Market Value – Market Value is the most widely accepted components of market value are incorporated in the following definition: the most probable price that the specified property interest should sell for in a competitive market after a reasonable exposure time, as of a specified date, in cash or in terms of equivalent to cash, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, for self interest, and assuming that neither is under duress.
Market Value – Market Value as defined by the uniform standard of professional Appraisal practice (USPAP)-a type of value, stated as an opinion that presumes the transfer of a property as of a certain date, under specific conditions, set forth in the definition of the term identified by the appraiser as applicable in an appraisal. (USPAP, 2010-2011 ed.)
Mass Appraisal – Mass Appraisal is the process of valuing a universe of properties as of a given date using standard methodology, employing common data, and allowing for statistical testing. (USPAP, 2010-2011 ed.) Often associated with real estate tax assessment valuation.
Modified Economic Age-Life Method – A method of estimating depreciation in which the ratio between the effective age of a building and its total economic life is applied to the current cost of the improvements after the costs to cure curable physical and functional items are deducted. See also economic age-life method.
Neighborhood – Neighborhood a group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises. It is also a developed residential super pad within a master planned community usually having a distinguishing name and entrance.
Obsolescence– Obsolescence is one cause of depreciations; an impairment of desirability and usefulness caused by new inventions, changes in design, improved processes for production, or external factors that make a property less desirable and valuable for a continued use; may either functional or external.
Overimprovement – Overimprovement is an improvement that does not represent the most profitable use for the site on which it is placed because it is too large or costly and cannot develop the highest possible land value; may be temporary or permanent. Can be considered a super-adequacy and measured accordingly in estimating depreciation.
Oversupply – Oversupply an excess of supply over demand; indicated by high vacancy rates, sluggish absorption rates, and declining rents.
Paired Data Analysis – Paired Data Analysis is a quantitative technique used to identify and measure adjustments to the sale prices or rents of comparable properties to apply this technique, sales or rental data on nearly identical properties is analyzed to isolate and estimate a single characteristic’s effect on value or rent. Often referred to as paired sales analysis.
Physical Life – Physical Life is the total period a building lasts or is expected to last as opposed to its economic life.
Potential Gross Income (PGI) – Potential gross income (PGI) is the total income attributable to real property at full occupancy before vacancy and operating expenses are deducted.
Professional Property Valuer – A Professional Property Valuer is a person who possesses necessary qualifications, ability, and experience to estimate property value for a diversity of purposes including transactions involving transfers of property ownership, property considered as collateral to secure loans and mortgages, property subject to litigation or pending settlement on taxes, and property treated as fixed assets in financial reporting. A Professional Property Valuer may also possess the specific expertise to perform valuations of other categories of property, i.e., personal property, businesses, and financial interests.
Riparian Rights – Riparian Rights is the right of the owner of land bordering a non-navigable lake or stream to the use and enjoyment of the water that flows across their land or is contiguous to it. Under the riparian rights doctrine, all owners of land underlying or abutting the water have equal rights to it. In comparison, the prior appropriation doctrine would not confer equal rights to all owners of land underlying or abutting the water.
Sales Comparison Approach – Sales Comparison Approach is the process of deriving a value indication for the subject property by comparing market information for similar properties with the property being appraised, identifying appropriate units of comparison, and making qualitative comparisons with or quantitative adjustments to the sale prices of the comparable properties based on relevant, market-derived elements of comparison.
Short Sale– Short Sale is a sale of real property in which the proceeds from the sale fall short of the balance owed on a loan secured by the property. Lenders may agree to a short sale to avoid lengthy and costly foreclosure proceedings, and borrowers who cannot meet their mortgage obligations may agree to a short sale to satisfy their debt. See also deed in lieu; foreclosure.
Special Use Permit – Permission granted by a local zoning agency that authorizes a use as a special exception to the applicable zoning. A special use permit in a residentially zoned area might allow for construction of a church or hospital. Such uses are considered conditional uses, only permitted upon the approval of the zoning authority. Sometimes referred to as a conditional use permit. See also legally nonconforming use; zoning variance.
Surplus Land – Surplus Land is land that is not currently needed to support the existing improvement but cannot be separated from the property and sold off. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel.
Swale – Swale is a shallow depression, in a flat area of land, that may be artificial and used in a storm water drainage system.
Tenancy by the Entirety – Tenancy by the Entirety an estate held by a husband and wife in which neither has a disposable interest in the property during the lifetime of the other, except through joint action.
Underimprovement – Underimprovement is an improvement that is inadequate to maximize the return to the site, usually a structure that is of a lower quality or size than typical of competitive properties, or one designed for a use of lower intensity.
Valuation Process – Valuation Process is a systematic procedure used in the valuation of real property.
Value in Use- Value in Use is the value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal. Value in use may or may not be equal to market value but is different conceptual.
Zoning – Zoning is a public regulation of the use of private land through application of police power; accomplished by establishing districts or areas with uniform requirements relating to lot coverage, setbacks, type of improvement, permitted activities, signage, structure height, minimum lot area, density, landscaping, and other aspects of land use and development. Zoning regulations are established by enactment of a local (city, town, or country) zoning ordinance.
Zoning variance- Zoning variance is a legally authorized modification in the use of property at a particular location that does not conform to the regulated use set forth in the zoning ordinance for the surrounding area; not an exception or change in the legally applicable zoning. See also legally nonconforming use.
All definitions were transferred from The Dictionary of Real Estate Appraisal produced by the Appraisal Institute.