Licensed Residential Appraiser key terms

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

The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller acting prudently and knowledgeably, price unaffected by undue stimulus.

The value of a property to a particular investor based on that party's own investment criteria, financing, tax position, and risk tolerance. It differs from market value because it reflects individual rather than typical motivations.

The value a specific property has for a specific use, without regard to its highest and best use or the value it might command in exchange. Special-purpose properties are often valued on this basis.

The dollar amount a taxing authority assigns to a property as the basis for levying property taxes. It is typically a statutory percentage of market value and may lag current market conditions.

A sale between unrelated parties, each acting in its own self-interest, under no compulsion and with reasonable exposure to the market. Such sales are the preferred comparables for the sales comparison approach.

A closed transaction of a property similar to the subject that is used as a basis for comparison. Appraisers adjust comparables for differences in location, size, condition, and terms of sale.

A valuation method that estimates value by analyzing prices of similar properties and adjusting for differences between them and the subject. It is the most reliable approach for owner-occupied residential properties.

A dollar or percentage modification applied to a comparable sale's price to reflect a difference between that property and the subject. Adjustments are made to the comparable, never to the subject.

The sum of all positive and negative adjustments applied to a comparable sale, expressed as a single figure. It shows the overall direction and magnitude of the comparables' correction to the subject.

The total of all adjustments to a comparable regardless of sign, calculated by adding absolute values. A high gross adjustment percentage suggests the comparable is less similar and deserves less weight.

A valuation method that estimates value by adding the depreciated cost of improvements to the land value. It is most credible for new construction or special-purpose properties with few comparable sales.

The cost to construct, at current prices, an exact duplicate of the subject improvements using the same materials, design, and workmanship. It may differ from replacement cost when obsolete features exist.

The cost to build, at current prices, a structure with equivalent utility to the subject using modern materials and methods. It is the preferred cost basis when the subject has outdated features.

The difference between the cost of improvements and their contribution to value at the effective date. It arises from physical deterioration, functional obsolescence, and external obsolescence.

A loss in value caused by defects in the property's design, layout, or features relative to market expectations. It may be curable, such as an outdated kitchen, or incurable, such as a poor floor plan.

A loss in value caused by factors outside the property itself, such as neighborhood decline, traffic patterns, or adverse zoning. It is generally considered incurable because the owner cannot control the cause.

A loss in value from wear and tear, deferred maintenance, or structural aging of the improvements. It is classified as curable or incurable and measured through cost estimates or observed condition.

The age indicated by the condition and utility of the improvements rather than their chronological age. A well-maintained older home may have an effective age lower than its actual age.

The period over which improvements contribute to property value, ending when they no longer add value beyond the land. It is used in age-life depreciation and often differs from physical life.

A valuation method that converts anticipated future income into present value using a capitalization rate or discounted cash flow analysis. It is most reliable for properties purchased for their income-producing potential.

The rate that converts a single year's net operating income into an estimate of value, expressed as income divided by price. It reflects risk, growth, and financing expectations in the market.

Effective gross income minus all operating expenses, excluding debt service, income taxes, and depreciation. It is the income figure capitalized into value in the income approach.

The ratio of a property's sale price to its gross monthly or annual rent. It offers a quick comparison tool but ignores operating expenses and vacancy, so it is only a rough indicator.

The final step of the valuation process in which the appraiser weighs the approaches used and resolves them into a single value conclusion. It is not averaging but reasoned judgment about reliability.

The type and extent of research and analysis an appraiser performs for an assignment, determined by the problem to be solved and the intended use. It must be sufficient to produce credible results.

The purpose for which an appraisal or appraisal review is being performed, such as mortgage lending, estate settlement, or litigation. It drives the appropriate scope of work and reporting format.

The party or parties the appraiser identifies as the expected recipients of the report. Only intended users may rely on the appraisal for the stated purpose.

A USPAP provision allowing departure from a standard when a law or regulation of a jurisdiction conflicts with it, to the extent of the conflict. The appraiser must disclose the exception in the report.

The Uniform Standards of Professional Appraisal Practice, which set minimum ethical, competency, and reporting requirements for appraisers. Compliance is mandatory for federally related transactions and state-licensed appraisers.

An assumption, directly related to a specific assignment, that if found to be false could alter the appraiser's opinion or conclusion. It must be clearly disclosed and is used when information is uncertain.

A condition that is contrary to what exists but is supposed for the purpose of analysis, such as valuing a property as if it were vacant. It must be clearly disclosed in the report.

A use that was lawful when established but no longer conforms to current zoning because regulations changed. It may continue but typically cannot be expanded or rebuilt after substantial destruction.

A temporary use of property that is not the highest and best use but is reasonable until a more productive use can be developed. It is often a holding use such as a parking lot.

A local law that divides a community into districts and regulates land uses, density, lot size, and building height. It affects a property's legally permissible use and therefore its value.

A legal right to use another's land for a specific purpose, such as a utility line or driveway access. It is an encumbrance that can affect value and must be identified in the appraisal.

Any right, interest, or claim held by someone other than the owner that affects title or limits use, including liens, easements, and deed restrictions. Encumbrances can affect marketability and value.

A property tax levied according to the assessed value of the property rather than a flat fee. It is a recurring operating expense that influences net income and market value.

The economic principle that a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute. It underpins all three approaches to value.

The principle that the value of any component of a property is measured by how much it adds to the overall value, not by its cost. It guides decisions about improvements and curable obsolescence.

The principle that maximum value tends to occur when a property is reasonably similar in use, size, and style to surrounding properties. Over-improvement or under-improvement can reduce value.

The principle that the value of an inferior property is enhanced by association with superior properties in the neighborhood. It supports the idea that a modest home among larger homes may sell for more.

The principle that the value of a superior property is diminished by association with inferior properties nearby. An expensive home in a modest neighborhood may suffer a value penalty.

The principle that value is created by the expectation of future benefits, such as income, appreciation, or tax advantages. It is central to the income approach and to investment decisions.

The market force by which price is set through the interaction of the quantity of properties available and the number of buyers seeking them. Imbalances shift prices and rents over time.

The rate at which available properties are sold or leased in a given market over a period, often expressed in months of supply. It indicates whether demand is keeping pace with inventory.

The study of market conditions, including supply, demand, absorption, and price trends, that affect a property's value. It supports the highest and best use conclusion and the reasonableness of comparables.

The increase in value that results from assembling two or more adjacent parcels into one larger, more useful tract. It is distinct from assemblage, which is the act of combining the parcels.

The process of combining adjacent parcels of land into a single ownership or tract. The resulting value may exceed the sum of the individual parcel values, a gain called plottage.

Land that is larger than needed to support the highest and best use of the improvements and is not needed for that use. It may have separate value if it can be developed independently.

Land that exceeds what is typical for the neighborhood but cannot be separately developed because of physical or legal constraints. It contributes little or no additional value to the property.

The finished, heated, above-grade living space of a dwelling, measured using the exterior dimensions of the structure. It excludes garages, basements, and unfinished areas and is a key adjustment item.

An adjustment to a comparable sale reflecting changes in market prices between the comparable's sale date and the effective date of the appraisal. It is supported by paired sales or price index analysis.

The date as of which the appraiser's opinion of value applies, which may differ from the report date. Market changes after that date are not reflected in the value conclusion.

The legal right to own, use, and dispose of property, evidenced by a deed and subject to encumbrances and restrictions. Clear title generally supports marketability and full market value.