ASFMRA AFM key terms

The reasonably probable, legally permissible, physically possible, and financially feasible use of a property that produces the greatest value. It is tested as though vacant and as improved.

A temporary use of land that is not the highest and best use but provides some income or return while the property awaits a higher use. It must be legally permissible and financially feasible.

The principle that the value of any component of a property depends on how much it adds to or subtracts from the whole. An improvement is worth only what it contributes to market value.

The point at which additional investment in land or improvements no longer adds proportionate value. Extra spending beyond that point produces less return than the cost incurred.

The income remaining after paying for labor, management, and capital; it is the return attributable to land. This residual is the economic basis for land value.

The principle that value is created by the expectation of future benefits. Present worth reflects the timing, amount, and risk of income or amenities expected in the future.

The principle that value is maximized when land uses are reasonably consistent with surrounding uses. Excessive similarity or dissimilarity can reduce value in a neighborhood.

The principle that a property's value may increase because it is located among properties of greater value or quality. The lower-valued parcel benefits from association with superior neighbors.

The principle that a property's value may be reduced by association with properties of lesser value or quality. A superior parcel can be pulled down by inferior surroundings.

A valuation method that estimates value by analyzing prices of comparable properties and adjusting for differences. It is most reliable when recent, arm's-length sales of similar properties exist.

A transaction between unrelated, informed parties who are willing and not under undue pressure. It reflects typical market conditions and is the preferred evidence in the sales comparison approach.

A table comparing subject and comparable sales, listing differences and dollar or percentage adjustments. It converts comparable sale prices into indicators of the subject's value.

A technique that isolates the effect of a single difference by comparing two otherwise similar sales. The price difference is attributed to the one varying characteristic.

A valuation method that converts expected future income into present value. It is used when a property's earning capacity drives its value, such as farms with strong cash-rent markets.

Effective gross income less operating expenses, excluding debt service, income taxes, and depreciation. It represents the income available to the property before financing and ownership costs.

A rate used to convert a single year's net operating income into an indication of value, calculated as income divided by price. It reflects risk, growth, and market expectations.

A method that estimates land value by deducting the income attributable to improvements from net operating income. The remaining income is capitalized to indicate land value.

An analysis that projects future cash flows and discounts each to present value using a required rate of return. It handles uneven income and reversion timing better than direct capitalization.

A valuation method that estimates value as the cost to replace or reproduce improvements, less depreciation, plus land value. It is most useful for new or special-purpose structures.

The cost to construct a building of equal utility using current materials, standards, and design. It is often the preferred cost measure when the subject is not new.

In appraisal, the difference between the cost of an improvement and its contribution to value. It may be physical deterioration, functional obsolescence, or external obsolescence.

A loss in value caused by factors outside the property itself, such as market conditions or nearby nuisances. It is generally incurable by the owner because the cause lies off-site.

The most probable price a property should bring in a competitive, open market under all conditions for a fair sale. Buyer and seller act prudently, without undue stimulus.

Absolute ownership of real property, unencumbered by any other interest or estate, subject only to government powers. It is the broadest bundle of rights a private owner can hold.

The ownership interest held by a landlord, subject to an existing lease that conveys rights to a tenant. Its value reflects the contract rent and lease terms in place.

The tenant's right to use and occupy real property under a lease for a stated term. Its value depends on the difference between contract rent and market rent.

A measure of a soil's relative capacity to support crop growth, often based on yield potential for common crops. It helps compare land parcels and explain sales price differences.

The maximum number of animals or level of use a parcel can sustain without degrading its resources. It is a key factor in valuing ranches and grazing land.

The amount of forage needed to support one animal unit for one month, commonly one mature cow with calf. It is a standard measure for comparing grazing land and lease rates.

A legal entitlement to use water from a source, defined by amount, priority, and purpose. In agricultural valuation, secure water rights can add substantial value to land.

A right held by one party to use another's land for a specific purpose, such as access or utilities. It can burden the servient parcel and affect marketability and value.

The Uniform Standards of Professional Appraisal Practice, which set requirements for appraisal development, reporting, and ethics. Compliance is expected of appraisers preparing agricultural valuations.

The type and extent of research and analysis an appraiser determines is necessary to complete an assignment credibly. It must be stated and supported in the report.

A written agreement defining the assignment, client, intended use, scope, fee, and deadlines. It clarifies expectations and reduces misunderstandings before work begins.

A situation in which an appraiser's personal or financial interests could bias professional judgment. Such conflicts must be disclosed and avoided where they compromise objectivity.

A fee arrangement in which payment depends on a predetermined result, such as a target value. Accepting such an arrangement is generally prohibited because it compromises independence.