Glossary of Terms

1031 Exchange

A section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes. Taxes on capital gains are not charged on the sale of a property if the money is being used to purchase another property – the payment of tax is deferred until property is sold with no re-investment. (A)


Mathematical changes made to basic data to facilitate comparison or understanding. When dollar adjustments are used, individual differences between comparables and the subject property are expressed in terms of plus or minus dollar amounts; with percentage adjustments, individual differences are reflected in plus or minus percentage differentials. (B)


A tangible or intangible benefit of real property that enhances its attractiveness or increases the satisfaction of the user. Natural amenities may include a pleasant location near water or a scenic view of the surrounding area; man-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities. (B)


The perception that value is created by the exception of benefits to be derived in the future. (B)


  1. The act or process of developing an opinion of value. (B)
  2. An opinion of value. (C)

Appraisal Report

The written or oral communication of an appraisal. (B)

Appraisal Review

The act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment. (C)

Arm’s Length Transaction

A transaction in which the buyers and sellers of a product act independently and have no relationship to each other. The concept of an arm’s length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party. (A)


  1. The combining of two or more parcels, but not necessarily contiguous, into one ownership or use; the process that may great plottage.
  2. The combining of separate properties into units, sets , or groups, i.e., integration or combination under unified ownership. (B)

Assessed Value

The value of a property according to the tax rolls in ad valorem taxation; may be higher or lower than the market value, or based on an assessment ratio that is a percentage of market value. (B)

Assignment Results

An appraiser’s opinions or conclusions developed specific to an assignment.  Assignment results include an appraiser’s:

  •  opinions or conclusions developed in an appraisal assignment, not limited to value;
  •  opinions or conclusions, developed in an appraisal review assignment, not limited to an opinion about the quality of another appraiser’s work; or
  •  opinions or conclusions developed when performing a valuation service other than an appraisal or appraisal review assignment. (C)

Automated Valuation Model (AVM)

  1. Computer software that queries property and market data, analyzes comparable property and market information to  assign a value or range of value to a particular property, or generates metrics applicable to assessing the credibility of valuation-related statements.
  2. An AVM is a computer software program that analyzes data using an automated process. For example, AVMs may use regression, adaptive estimation, neural network, expert reasoning, and artificial intelligence programs.  The output of an AVM is not, by itself, an appraisal. An AVM’s output may become a basis for appraisal or appraisal review if the appraiser believes the output to be credible for use in a specific assignment.  An appraiser can use an AVM as a tool in the development of an appraisal or appraisal review. However, the appropriate use of an AVM is, like any tool, dependent upon the skill of the user and the tool’s suitability to the task at hand. (B)

Average Daily Traffic (ADT)

A 24-hour traffic volume that should be qualified by stating a time period. (E)

Before and After Rule

In eminent domain valuation, a procedure in which just compensation is measured as the difference between the value of the entire property before the taking and the value of the remainder after the taking. (B)

BOMA Standard

The standard method of measurement for office buildings as defined by the Building Owners and Managers Association. (B)

Bundle of Rights Theory

The concept that compares property ownership to a bundle of sticks with each stick representing a distinct and separate right of the property owner, e.g., the right to use real estate, to sell it, to lease it, to give it away, or to choose to exercise all or non of these rights.  (B)

Capitalization Rate

  1. Any rate used to convert income into value. (B)
  2. A rate of return on a real estate investment property based on the expected income that the property will generate. Capitalization rate is used to estimate the investor’s potential return on his or her investment. This is done by dividing the income the property will generate (after fixed costs and variable costs) by the total value of the property. If you want to get technical, it is basically the discount rate of a perpetuity. (A)

Cash-Equivalent Price

The price of a property with above- or below-market financing expressed in terms of the price that would have been paid in an all-cash sale. (B)

Cash Flow

The periodic income attributable to the interests in real property. (B)


A part of an appraisal report in which the appraiser certifies that the work was completed according to the applicable standards.  (B)


The result of the cause and effect relationship among the forces that influence real property value. (B)


The party of parties who engage an appraiser (by employment or contract) in a specific assignment. The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent. (C) See also intended user.

Commercial Property

Income-producing property such as office buildings, retail buildings, hotels, banks, restaurants, service outlets, and owner-occupied properties that are capable of becoming income-producing should the owner so decide; usually zoned for business purposes. (B)


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. comparable sales, comparable properties, comparable rents. (B)


The state of having the requisite or adequate ability or qualities to perform the specific assignment and produce credible assignment results. The comment on the Competency Rule of the Uniform Standards for Professional Appraisal Practice states that competency applies to factors such as, but not limited to, an appraiser’s familiarity with a specific type of property, a market, a geographic area, an analytical method, intended use, and specific laws and regulations that apply to the assignment. (B)


  1. Between purchasers or tenants, the interactive efforts of two or more potential purchasers or tenants to make a sale or secure a lease.
  2. Between sellers or landlords, the interactive efforts of two or more potential sellers or landlords to complete a sale or lease.
  3. Among competitive properties, the level of productivity and amenities or benefits characteristic of each property considering the advantageous or disadvantageous position of the property relative to the competitors. (B)

Comprehensive Land Use Plan 

A generalized, coordinated land use map and policy statement of the governing body of a local government that interrelates all functional and natural systems and activities relating to the use of lands, including but not limited to sewer and water systems, transportation systems, educational facilities, recreational facilities, and natural resources and air and water quality management programs. “Comprehensive” means all-inclusive, both in terms of the geographic area covered and functional and natural activities and systems occurring in the area covered by the plan. “General nature” means a summary of policies and proposals in broad categories and does not necessarily indicate specific locations of any area, activity or use. A plan is “coordinated” when the needs of all levels of governments, semipublic and private agencies and the citizens… have been considered and accommodated as much as possible. “Land” includes water, both surface and subsurface, and the air. (F)


The act or process of enforcing the right of eminent domain. (B)

Conditions of Sale

And element of comparison is the sales comparison approach; comparable properties can be adjusted for differences in the motivations of either the buyer or seller in a transaction, e.g., when the comparable transaction is not an arm’s-length sale. (B) See also transactional adjustments.


  1. 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.
  2. A multi-tenant structure, or a unit within such a structure, with a condominium form of ownership. (B)


The appraisal principle that real property value is created and sustained when the characteristics of the property conform to the demands of its market. (B)


The concept that the value of a particular component is measured in terms of the amount it adds to the value of the whole property or as the amount that it’s absence would detract from the value of the whole. (B) The principle of contribution is the basis for the adjustment process in the sales comparison approach. 

Contributory Value

The change in the value of a property as a whole whether positive or negative, whether positive or negative, resulting from the addition or deletion of a property component. Also called deprival value in some countries. (B)

Conservation Easement

An interest in real property restricting future land-use to preservation, conservation, wildlife habitat, or some combination of those uses. A conservation easement may permit farming, timber harvesting, or other uses of a world nature to continue, subject to the easement. In some locations a conservation easement may be referred to as a conservation restriction. (B) As differentiated from a preservation easement.

Consequential Damages

Damage to property arising as a consequence of a taking over and above direct damages. (B)

Cost Approach

A set of procedures through which the 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. (B)

Cost to Cure

The cost to restore an item of deferred maintenance to new or reasonably new condition. (B)

County State Aid Highway (CSAH)

Specialized form of county road that is part of the state aid system. County State Aid routes are eligible for funding from the County State Aid Highway Fund.  (E)

Curable Functional Obsolescence

And element of depreciation; curable defect caused by a flaw in the structure, materials, or design, which can be practically and economically corrected. (B)

Curable Physical Depreciation

A forms of physical deterioration that can be practically and economically corrected as of the effective date of appraisal. (B)


In condemnation, the loss in value to the remainder in a partial taking of property. Generally, the difference between the value of the whole property before the taking in the value of the remainder after the taking is the measure of the value of the part taken and the damages to the remainder. Note that different regions of the country and different courts may use terms such as consequential damages and severance damages differently.  (B)

Date of the Opinion of Value (Date of Report)

The date for which an opinion of value as valid. See also effective date.  (B)

Deferred Maintenance 

Needed repairs or replacement of items that should have taken place during the course of normal maintenance.  (B)


  1. In appraising, 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.
  2. in accounting, an allowance made against the loss in value of an asset for a defined purpose and computed using specified method. (B)

Desk Review

An appraisal review in which the reviewer’s scope of work does not include an inspection of the subject property. (B)

Desktop Appraisal

An appraisal report in which the appraiser’s scope of work does not include an inspection of the subject property or comparables. (D)


Impairment of condition; because of depreciation that reflects the loss in value due to wear and tear, disintegration, use in service, and the action of the elements. See also curable physical deterioration; incurable physical deterioration. (B)

Direct Capitalization

A method used to convert an estimate of a single year’s income expectancy into an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor. Direct capitalization employs capitalization rates and multipliers extracted or developed from market data. Only a single year’s income is used. Yield and value changes are implied but not identified.  (B)

Discount Rate

The yield rate used to convert future payments or receipts into present value; usually considered to be a synonym for yield rate. (B)

Discounted Cash Flow (DCF) Analysis

The procedure in which the discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams and the quantity and timing of the reversion, and discounts each to its present value at a specified yield rate.  (B)

Distress Sale

A sale involving a seller acting under undue distress. (B)

Driveby Appraisal

An appraisal report in which the scope of work includes an exterior-only viewing of the subject property.  (D)


The right to use another’s land for a stated purpose. (B)

Economic Characteristics

An element of comparison in the sales comparison approach. Comparable sales can be adjusted for differences in the attributes that affect a property’s income, such as operating expenses, quality of management, tenant mix, rent concessions, lease terms, lease expiration dates, renewal, options, and lease options such as recovery clauses.

Economic Life

The period over which improvements to real property contribute to property value.

Effective Age

The age of property that is based on the amount of observed deterioration and obsolescence it has sustained, which may be different from its chronological age.  (B)

Effective Date

  1. The date on which the analyses, opinions, and advice in an appraisal, review, or consulting service apply.
  2. In a lease document, the date upon which the lease goes into effect. (B)

Effective Gross Income (EGI)

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.  (B)

Elements of Comparison

Characteristics or attributes of properties and transactions that cause the prices of real property to vary; include real property rights conveyed, financing terms, conditions of sale, expenditures made immediately after purchase, market conditions, location, physical characteristics, and other characteristics such as economic characteristics, use, and non-realty components of value. (B)

Eminent Domain

The right of government to take private property for public use upon the payment of just compensation. The Fifth Amendment of the U.S. Constitution, also known as takings clause, guarantees payment of just compensation upon appropriation of private property.  (B)


  1. Trespassing on the domain of another.
  2. Partial or gradual displacement of an existing use by another use, e.g., locating commercial or industrial improvements in residential district. (B)


Any claim or liability that affects our limits the title to property. And encumbrance can affect the title such as the mortgage or other lean, or it can affect the physical condition of the property such as an easement. And encumbrance cannot prevent the transfer of possession, but it does remain after the transfer. (B)

Entrepreneurial Incentive

The amount entrepreneur expects to receive for his or her contribution to the project. Entrepreneurial incentive may be distinguished from entrepreneurial profit (often called developers profit) in that it is the expectation of future profit as opposed to the profit actually earn on a development or improvement. (B)

Entrepreneurial Profit

  1. A market-derived figure that represents the amount entrepreneur receives for his or her contribution to a project and risk; the difference between the total cost of property (cost of development) and its market value (property after completion), which represents the entrepreneur’s compensation for the risk and enterprise associated with development. And entrepreneur is motivated by the prospect of future value advancement (i.e. the entrepreneurial incentive). And entrepreneur successfully creates new value through development, expansion, renovation, or an innovative change of use is rewarded by entrepreneurial profit. Entrepreneurs may also fail and suffer losses.
  2. In economics, the actual return on successful management practices, often identified with coordination, the fourth factor of production following land, labor, and capital; also called entrepreneurial return or entrepreneurial reward. (B)


  1. A right or interest in property. Defines an owner’s 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) and leasehold. To be an estate in land, an interest must allow possession (either now or in the future) and be differentiated primarily by its duration.
  2. The net worth of an entity at appointment time. Possessions left two heirs upon death are often referred to as the estate. (B)

Estate Tax

A tax on the estate or wealth of the deceased person that is usually computed as a percentage of the market value of the assets of the estate. See also inheritance tax. (B)

Excess Land

Land that is not needed to serve or support the existing improvement. Highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land may have the potential to be sold separately and is valued separately. See also surplus land. (B)

Executor (Personal Representative)

An individual or other legal person designated in a will to settle the estate of the deceased person. (B)

Expenditures Made Immediately After Purchase

An element of comparison in the sales comparison approach; comparable properties can be adjusted for any additional investment (e.g., curing deferred maintenance) required to make the property salable.  (B)

Expert Testimony

Testimony of persons who are presumed to have special knowledge of, or skill in, a particular field due to education, experience, or study. The Daubert and Kumho Tire decisions of the US Supreme Court discussed for considerations in determining the reliability of expert testimony – testing, peer review, error rates, and acceptability and the relevant scientific community. (B)

Exposure Time

  1. The time of property remains on the market.
  2. 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.  (C)

External Obsolescence (Economic Obsolescence)

An element of depreciation; and diminution in value caused by negative externalities and generally incurable on the part of the owner, landlord, or tenant. (B)


  1. A method of estimating value in which the depreciated cost of the improvements on the improved 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 sales when the sale price and net operating income are known. (B)

Extraordinary Assumption

An assumption, directly related to a specific assignment,  as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of the data used in an analysis.  (C)

Feasibility Analysis

And study of the cost-benefit relationships of an economic endeavor. (C)

Fee Simple Estate

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. (B)

Field Review

An appraisal review for which the scope of 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. If you review is generally performed using a customized checklist that covers the items examined in the 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. (B)

Final Opinion of Value

The opinion of value derived from the reconciliation of value indications and stated in the appraisal report; may be expressed as a single point, as a range, or in relation to a benchmark. (B)

Final Reconciliation

The last phase in the development of the value opinion in which two or more value indications derived from market data are resolved into a value opinion, which may be either a final range of value for a single point estimate. (B)

Financial Feasibility

One of the four criteria the highest and best use of a property must meet; the ability of a property to generate sufficient income to support the use for which it was designed. (B)

Financing Terms

The manner in which a transaction was financed; an element of comparison in the sales comparison approach whereby comparable properties can be adjusted for differences between a transaction’s financing terms and those assumed in the valuation of the subject property.  (B)

Frictional Vacancy

The amount of vacant space needed in a market for its orderly operation. In a stabilized market, where supply and demand are in balance, frictional vacancy allows for move-ins and move outs.  In markets for income producing property, frictional vacancy measures the lost rental income as leases roll over and expire. (B)

Fixed Expense

Operating expenses that generally do not vary with occupancy and that prudent management will pay whether the properties occupied or vacant.  (B)

Fair Market Value (FMV)

  • 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 for size definition of the term depends on the use of the appraisal and the applicable jurisdiction. For example, the Internal Revenue Service defines fair market value as follows: 
    • The price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. Fair market value of a particular item of property includable in the descendant’s gross estate is not to be determined by a forced sale price. Norris the fair market value of an item of property to be determined by the sale price of an item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate. (IRS Regulation §20.2031-1)
  • The California Code of Civil Procedure (Section 1263.320(a)) defines fair market value as follows:
    • The highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available. (B)

Full Taking

The entire taking of the full real property interest of a parcel for public use under the power of eminent domain; requires the payment of compensation.  See also partial taking. (D)

Functional Classification

The process by which all roads are grouped into classes or systems according to the character of service they are intended to provide. Functional class defines the part that any particular road or street should play in serving the flow of trips through a highway network. (E)

Functional Obsolesce 

The impairment of functional capacity of a property according to market tastes and standards.

Geographic Information Systems (GIS)

A system or process that electronically captures, stores, analyzes, manages, and presents data linked to location, primarily and map form. Layers of the illustrative information can be selected and displayed such as aerial photography, topographic maps, flood maps, streets and roads, earthquake information, zoning overlays, political boundaries, and other forms of geographically referenced data. (B)

Going-Concern Value

  1. The market value of all the tangible and intangible assets of an established an operating business with an indefinite life, as if sold in aggregate; more accurately termed the market value of the going concern.
  2. The value of an operating business enterprise. Goodwill may be separately measured but is an integral component of going concern value when it exists and is recognizable. (B)

Going-In Capitalization Rate (Ro)

Overall capitalization rate obtained by dividing a properties net operating income for the first year after purchase by the present value of the property. (B)

Gross Building Area (GBA)

Total floor area of a building, excluding unenclosed area, measured from the exterior of the walls of the above-grade area. This includes mezzanines and basements if and when typically included in the region. (B)

Gross Living Area (GLA)

Total area of finished above-grade residential space; calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space. (Finished basements and attic areas are not generally included in total gross living area. Local practices, however, may differ.) (B)

Highest and Best Use

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 meet are legal permissibility, physical 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. (B)

Highest and Best Use of Land or Site As Though Vacant

Among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination. The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements. (B)

Highest and Best Use of Property As Improved

To use that should be made of the property as it exists. An existing improvement should be renovated or retain as so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one. (B)

Highway Easement

A right granted or taken for the construction, maintenance, and operation of the highway. (B)

Housing Starts

Newly constructed housing units; includes both single-family and multifamily domiciles. (B)

Hypothetical Condition

A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis. Hypothetical conditions are contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.  (C)

Income Capitalization Approach

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 into ways. One year’s income expectancy can be capitalized at a market-derived capitalization rate that reflects the specified income pattern, return on investment, and change in the value of the investment. Alternatively, the annual cash flows for the holding period and the reversion can be discounted at a specified yield rate. (B)

Incurable Functional Obsolescence

An element of depreciation; a defect caused by a deficiency or super adequacy in the structure, materials, or design that cannot be practically or economically corrected. (B)

Incurable Physical Depreciation

A form of physical deterioration that cannot be practically or economically corrected as of the date of appraisal. (B)

Inheritance Tax

A tax on the right to receive property by inheritance; as distinguished from estate tax. (B)

Interim Use

For 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. (B)

Internal Rate of Return

The annualized yield or rate of return on capital that is generated or capable of being generated within an investment or portfolio over a period of ownership. Alternatively, the indicated return on capital associated with the projected or pro forma income stream. (B)

Intended Use

  1. The use or uses of an appraiser’s reported appraisal or appraisal review assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment.  (C)
  2. The manner in which the intended users expect to employ information contained in the report.  (B)

Intended User

  1. The client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser on the basis of communication with the client at the time of the assignment. (C)
  2. A party who the appraiser intends will employ the information contained in a report. (B)

Jurisdictional Exception

An assignment condition established by applicable law or regulation, which precludes an appraiser from complying with a part of USPAP.  (C)

Just Compensation

In condemnation, the amount of loss for which a property owner is compensated when his or her property is taken.  Just compensation should put the owner in as good a position as he or she would be if the property had not been taken. (B)

Land Use

  1. The employment of a site or holding to produce revenue or other benefits.
  2. The designation by a governing authority of the use to which land maybe put to promote the most advantageous development of the community, e.g. designation of industrial, residential, commercial, and recreational, and other uses under a master plan. (B)

Larger Parcel

In governmental land acquisitions, the tract or tracts of land that are under the beneficial control of a single individual or entity and at the same, or an integrated, highest and best use. Elements of consideration by the appraiser in making a determination in this regard are contiguity, or proximity, as it bears on the highest and best use of the property, unity of ownership, and unity of highest and best use. In most states, unity of ownership, continuity, and unity of use are the three conditions that establish the larger parcel for the consideration of severance damages. In federal and some state cases, however, contiguity is sometimes subordinated to unitary use. (B)


A contract in which the rights to use and occupy land or structures are transferred by the owner to another for a specified period of time in return for specified rent. (B)

Leased Fee Interest

A freehold (ownership interest) for the possessory interest has been granted to another by creation of a contractual landlord-tenant relationship (i.e. a lease). (B)

Legal Description

A description of land that identifies the real estate according to a system established or approved by law; an exact description that enables the real estate to be located and identified. (B)

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 use. (B)

Legal Permissibility

One of the four criteria the highest and best use of a property must meet; A property use that is either currently allowed or most probably allowed under zoning codes, building codes, environmental regulations, and other applicable laws and regulations that govern land use. (B)


One who is the right to occupancy and use of the property of another for a period of time according to a lease agreement. (B)


One who conveys the rights of occupancy and use to others under lease agreement. (B)

Letter of Transmittal

Any type of written letter, memorandum, or statement that serves as a notice of delivery from the appraiser to the client of a report containing an opinion or conclusion concerning real estate; often a brief document in the introduction to an appraisal report that formally presents the report to the person for whom their appraisal was prepared.  (B)

Limiting Condition

A condition that limits the use of a report. (B)


The relative position of the property to competitive properties and other value influences in its market area; the time-distance relationships, or linkages, between a property or neighborhood and all other possible origins and destinations of people going to or coming from the property or neighborhood. (B) 

Long-Lived Item

A building component with an expected remaining economic life that is the same as the remaining economic life of the entire structure.  (B)

Loss of Access

Depriving an abutting owner of the inherent rights of ingress and to egress from the highway or street. (B)

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. (B)

Leased Fee Interest

A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e., a lease). (B)


The relative desirability of a property (for sale or lease) in comparison with similar or competing properties in the area. That is, a property with poor marketability would be inferior to competing properties in terms of location, condition, access, etc. Conversely, a property with good marketability has superior features or condition in comparison with competing properties. (B)

Marketability Analysis

A process for examining the productive attributes of the specific property, its demand and supply, and it’s geographic market area. Marketability analysis is an essential part of the highest and best use conclusion for every valuation appraisal. (B)

Market Conditions

And elements of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the points in the real estate cycle at which the transactions occur. Sometimes called a “time adjustment” because the difference in dates of sale are often compared, although that usage can be misleading.  (B)

Market Participants

The parties involved in the transfer of property rights. Includes buyers, sellers, lessors, lessees, and brokers and their agents.  (D)

Market Rent

The most probable rent the property should bring in a competitive and open market reflecting all conditions and restrictions of the lease agreement, including permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements (TIs). (B)

Market Vacancy

The overall vacancy rate that occurs as a result of the interaction of supply and demand of a particular property type in a particular region or market. Market vacancy can be equal to frictional vacancy if the market has no structural problems; it can be less than frictional vacancy in rent-controlled markets. 

Market Value

  1. 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 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.  (B)
  2. A type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), 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.  (C)

Marketing Time

And opinion of the amount of time it may 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 proceed the effective date of an appraisal. (B)

Mass Appraisal

The process of valuing a universe of properties as of a given date using standard methodology, employing common data, and allowing for statistical testing.  (B)

Master Plan

A comprehensive, long-range official plan that guides the physical growth and development of the community, combined with the basic regulatory and administrative controls needed to attain the physical objectives; includes land-use plan, thoroughfare plan, community facilities plan, and public improvements program.  Master plans are usually revised periodically (e.g., every five years). In some jurisdictions, the master plan takes precedence over the existing zoning.  See also comprehensive plan. (B)

Maximum Productivity

One of the four criteria the highest and best use of a property must meet; the selected land-use must yield the highest value of the possible uses. (B)

Mitigation of Damages

The legal responsibility of a plaintiff to make reasonable efforts, after an injury or breach of contract, to alleviate the effects of the injury or breach. If the defendant can show that the plaintiff failed to mitigate damages, the plaintiff’s recovery may be reduced. (B)

Multifamily Dwelling

A building containing two or more dwelling units. (B)

Net Lease 

A lease in which the landlord passes on all expenses to the tenant. (B)

Net Net Net Lease (NNN)

A lease in which the tenant assumes all expenses (fixed and variable) of operating a property except that the landlord is responsible for structural maintenance, building reserves, and management. (B)

Net Operating Income (NOI)

The actual or anticipated net income that remains after all operating expenses are deducted from the effective gross income but before mortgage debt service and book depreciation are deducted. Note: this definition mirrors the convention used in corporate finance and business valuation for EBITDA (earnings before interest, taxes, depreciation, and amortization). (B)


One cause of depreciation; 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 be either functional or external.

Operating Expense Ratio (OER)

The ratio of total operating expenses to effective gross income (TOE/EGI); the compliments of the net income ratio; i.e., OER = 1 – NIR. (B)

Operating Expenses

The periodic expenditures necessary to maintain the real property and continue production of the effective gross income, assuming prudent and competent management. (B)

Operating Income

Income derived from the operation of a business or real property; indicates a stage in the profit and loss account where all direct costs and income from the operation have been taken into account; as distinguished from next profit or cash flow. (B)

Operating Statement

A financial statement that reflects the gross revenues, expenses, and net operating profit or loss of an investment over a fixed period. (B)

Oral Appraisal Report

A report that is transmitted orally. See also written appraisal report. (B)

Overall Capitalization Rate (Ro)

An income rate for a total real property interest that reflects the relationship between a single year’s net operating income expectancy and the total property price or value (Ro = Io/Vo). (B)

Overall Yield Rate (Yo)

The rate of return on the total capital invested, including both debt and equity. Also called property yield rate. When applied to cash flows, it is called a discount rate.  (B)

Paired Data Analysis

A quantitative techniques 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 an estimate a single characteristics of fact on value or rent. Often referred to as paired sales analysis. (B)

Parcel Identification Number

A numeric or alphanumeric label that uniquely identifies a parcel. Government property assessors use various systems, many with common features. A growing number of these systems include geocoding. The government Survey system is often used as a basis for parcel identification.  (B)

Partial Interest

Divided or undivided rights in real estate that represent less than the whole (a fractional interest).  (B)

Partial Taking

The taking of part of any real property interest for public use under the power of eminent domain; requires the payment of compensation. (B)

Percentage Adjustments

Adjustments for differences between the subject and comparable properties expressed as a percentage of the sale price (or adjusted sale price) of the comparable property; percentage adjustments are often used to reflect changes in market conditions and differences in location. (B)

Personal Representative (Executor)

And individual or other legal person designated in a will to settle the estate of a deceased person. (B)

Personal Property

  1. Identifiable tangible objects that are considered by the general public as being “personal” – for example, furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; all tangible property that is not classified as real estate. (C)
  2. Consists of every kind of property that is not real property; movable without damage to itself or the real estate; subdivided into tangible and intangible. Also called personality. (G)

Physical Characteristics

A category of elements of comparison in the sales comparison approach; comparable properties can be adjusted for differences in such characteristics as size, age (at the time of the transaction), condition, functional utility, and quality of the improvements. (B)

Physical Deterioration

The wear and tear that begins with the building is completed and placed into service. (B)

Physical Life

The total period a building lasts or is expected to last as opposed to its economic life. (B)

Physical Possibility

One of the criteria for highest and best use of a property must meet; the land must be able to accommodate the size and shape of the ideal improvement.  (B)

Pipeline Easement

The right to construct, operate, and maintain a pipeline over the lands of others within prescribed geographical limits. The language of the easement determines the extent of the rights granted. (B)

Planned Unit Development (PUD)

A type of building development designed as a group of complementary land uses, such as housing, schools, recreation, retail, office, and industrial parks, contained within a single master development. (B)


  1. A plan, map, or chart of a city, town, section, or subdivision indicating the location and boundaries of individual properties. 
  2. A map or sketch of an individual property that shows property lines and may include features such as soils, building locations, vegetation, and topography.
  3. A map intended to show the division of land into lots or parcels. Upon recordation with the appropriate authorities, land included in the plat can thenceforth be legally described by reference to the plat, omitting a metes and bounds description. (B)


The incremental value created when two or more sites are combined to produce greater utility. See also assemblage.  (B)

Pole Line Easement

An easement for the construction, maintenance, and operation of a full line, usually for the transmission of electric power. (B)

Potential Gross Income (PGI)

The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted. (B)

Present Value

The value of a future payment or series of future payments discounted to the current date or to time period zero. (B)

Preservation Easement

A voluntary legal agreement that becomes part of the chain of title thereby protecting a historic, archaeological, or cultural resource. Tax benefits may arise from granting a preservation easement to a qualified organization dedicated to historic preservation. (B)  As differentiated from a conservation easement.

Primary Data

Information that is gathered in its original form by the analyst. See also secondary data. (B)

Private Mortgage Insurance (PMI)

Insurance provided by a private mortgage lender to protect against loss caused by a borrower’s default on a residential or commercial mortgage loan. (B)


  • The legal process of settling an estate after a person has died.  A petition must be filed with the court and a personal representative must be appointed.  The personal representative is responsible for the following:
  • Collection of inventories and appraisal of assets of the person who has died.
  • Protection of the estate’s assets.
  • Payment of decedent’s debts.
  • Distribution of the remaining assets to the proper parties as provided by law.  (H)

Pro Forma

A projected income and expense statement for proposed development. See also reconstructed operating statement.  (B)


In appraisal, the concept that the value of an inferior property is enhanced by its association with better properties of the same type. See also regression.  (B)

Property Class

In accounting, a category for property under the modified accelerated cost recovery system (MACRS). It generally determines the depreciation method and recovery period. (B)

Property Adjustment

In comparative analysis, adjustments that are made to the comparable sales for differences in property characteristics including location, physical characteristics, economic characteristics, legal characteristics, and non-realty components of value when compared the subject. (D)

Property Tax

Any tax that is imposed on persons on account of their ownership or possession of property and is measured by the number of units, the value, or some presumptive evidence of number of units or value, of such property. Note: This taxes generally, but not necessarily, intended to be a direct, proportional ad valorem tax. (G)

Prospective Opinion of Value

A value opinion effective as of a specified future date. The term does not define a type of value. Instead, it identifies the value opinion as being effective at some specific future date. An opinion of value as of a prospective date is frequently sought in connection with projects that are proposed, under construction, or under conversion to a new use, or those that have not yet achieved sellout or a stabilized level of long-term occupancy.  (B)

Proximity Damage

And elements of severance damages that is caused by the remainder’s proximity to the improvement being constructed (e.g., a highway); may also arise from proximity to an objectionable characteristic of a site or improvement (e.g., dirt, dust, noise, vibration). (B)

Purpose of an Appraisal

The objective of an assignment – e.g., in an appraisal assignment, to develop an opinion of the defined value of any real property interest. (B)

Qualitative Analysis

The process of accounting for differences (such as between comparable properties and the subject) that are not quantified; maybe combined with quantitative analysis. (B)

Quantitative Analysis

In the sales comparison approach, the process of making numerical adjustments to the sale prices of comparable properties, including data analysis techniques (paired data analysis, group data analysis, secondary data analysis), statistical analysis, graphic analysis, trend analysis, cost analysis (cost to cure, depreciated cost), and capitalization of rent differences; usually precedes qualitative analysis. (B)

Rail Easement

The right for the construction, maintenance, and operation of a rail line on a property. (B)

Range of Value

In final reconciliation, the range in which the final market value opinion of a property may fall; usually stated as the interval between a high and low value limit. (B)

Ranking Analysis

An ordinal technique for analyzing data, commonly used in the analysis of comparable sales; a variant of relative comparison analysis in which comparable sales are arrayed into descending or ascending order of desirability and each is analyzed to determine its comparability to the subject property. (B)

Raw Land 

Land on which no improvements have been made; land in its natural state before grading, construction, subdivision, or the installation of utilities. (B)

Real Estate

And identified parcel or tract of land, including improvements, if any.  (C)

Real Estate Market

Buyers and sellers of particular real estate and the transactions that occur among them. (B)

Real Property

The interests, benefits, and rights inherent in ownership of real estate. (C)

Real Property Rights Conveyed

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the real property rights involved in a transaction.


In law, just, rational, appropriate, ordinary, or usual in the circumstances. It may also refer to care, cause, compensation, doubt (in criminal trial), and a host of other actions or activities. (B)


The process of reducing a range of value indications into an appropriate conclusion for that analysis, e.g., the derivation of a value indication from the adjusted prices of two or more comparable sales in the sales comparison approach. See also final reconciliation. (B)

Reconstructed Operating Statement

A statement prepared by an appraiser to reflect potential future performance of a property allowing consideration of the historical income and expenses of an investment property. In preparing reconstructed operating statements, appraisers may consult accountants’ financial balance sheets, comparable properties, auditors’ statements, or historical data provided by the ownership entity. (B)


The development or improvement of cleared or undeveloped land in an urban renewal area; technically includes the direction of buildings and other development and improvement of the land by private or public redevelopers to whom the land has been made available. (B)


In appraisal, the concept that the value of a superior property is adversely affected by its association with an inferior property of the same type. See also progression. (B)

Regression Analysis

A statistical measure that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables). (A)


The repair and restoration of existing improvements that are in poor condition to a state that makes the property competitive again. See also remodeling; renovation. (B)


  1. A future possessor read interest in real estate that is given to a third-party and matures upon the termination of a limited or determinable be. For example, A gives B a life estate in A’s farm for B’s lifetime.  A also gives C an interest in the farm to take effect upon B’s death. C has a remainder interest.
  2. In eminent domain condemnation, that portion of a larger parcel remaining in the ownership of the property owner after a partial taking. See also larger parcel.  (B)

Remaining Economic Life

The estimated period during which improvements will continue to represent the highest and best use of the property; an estimate of the number of years remaining in the economic life of the structure or structural components as of the effective date of the appraisal; used in the economic age-life method of estimating depreciation.

Remaining Useful Life

The estimated period during which improvements will continue to provide utility; an estimate of the number of years remaining in the useful life of the structure or structural components as of the date of the appraisal; used in the breakdown method of estimating depreciation. (B)


A remainder that has negligible economic utility or value due to its size, shape, or other detrimental characteristics; also called on economic remainder or on economic remnant. See also remainder. (B)


A type of renovation that involves modification or updating of existing improvements. (B)


The process in which older structures or historic buildings are modernized, remodeled, or restored. Generally, the objective of renovation is to maintain or restore the basic plan and style of the building rather than to modify the original design by accretions or alterations, though new construction often accompanies restoration.  Renovation is closely associated with urban brand-new and may encompass the development of facilities to serve the community. (B)

Rent Roll

A report that is prepared regularly, usually each month, and indicates the rent-paying status of each tenant. (B)

Replacement Allowance

And allowance that provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced during the buildings economic life; sometimes referred to as reserves or reserves for replacement. (B)

Replacement Cost

The estimated cost to construct, at current prices as of the effective appraisal date, a substitute for the building being appraised, using modern materials and current standards, design, and layout. (B)


Any communication, written or oral, of an appraisal or appraisal review that is transmitted to the client upon completion of an assignment. (B)

Reproduction Cost

The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, super adequacies, and obsolescence of the subject building.

Retrospective Opinion of Value

A value opinion effective as of a specified historical date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific prior date. Value as of a historical date is frequently sought in connection with property tax appeals, damage models, lease renegotiation, deficiency judgments, estate tax, and condemnation. Inclusion of the type of value with the term is appropriate, e.g., “retrospective market value opinion.” (B)


And appropriation from surplus funds that is allocated to deferred or anticipated contingencies. In business, a credit account created to accumulate funds to retire debt or cover losses that are payable or expected to accrue in the future. (B)

Residential Property

A vacant or in proof parcel of land devoted to or available for use as a residence, e.g., single-family homes, apartments, rooming houses. (B)


The quantity left over; in appraising, a term used to describe the result of an appraisal procedure in which no one components of value are accounted for, thus solving for the quantity that is left over, such as land residual or building residual. (B)

Residual Capitalization Rate

And overall capitalization rate used to estimate the resale price of the property; Usually based on the anticipated stabilized income for the year beyond the holding period; also called terminal capitalization rate. (B)

Restricted Appraisal Report

One of the two types of appraisal reporting options.  A Restricted Appraisal Report generally contains less information than an Appraisal Report, and must include a prominent use restriction that limits the use of the report to the client and warns that the rationale for how the appraiser arrived at the opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser’s work file. (B)


A lump sum benefit that an investor receives or expects to receive upon the termination of an investment; also called reversionary benefit. (B)

Right of Way

A right to pass over land in some particular path; a strip of land used for transportation such as streets and roads, railways, utility lines, and for other private or public transportation uses. (B)

Risk Rate

The annual rate of return on capital that is commensurate with the risk assumed by the investor; the rate of interest or yield necessary to attract capital. (B)


Money paid to an owner of real property or mineral rights for the right to deplete natural resource (e.g., oil, gas, minerals, stone, builders’ sand and gravel, timber); usually expressed as a portion of the revenue received for, or price per unit of, the resource extracted. (B)

Safe Rate

The minimum rate of return on invested capital. Theoretically, the difference between the total rate of return and the safe rate is considered a premium to compensate the investor for risk, the burden of management, and the illiquidity of the capital invested; also called riskless rate or relatively riskless rate. (B)


A financing arrangement in which real property is sold by its owner-user, who simultaneously leases the property from the buyer for continued use. Under this arrangement, the seller receives cash from the transaction and the buyer is assured a tenant. (B)

Sales Comparison Approach

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 price (or unit prices, as appropriate) of the comparable properties based on relevant, market derived elements of comparison. (B)

Salvage Value

The price expected for a whole property (e.g., a house) or a part of a property (e.g., a plumbing fixture) that is removed from the premises usually for use elsewhere. (B)

Scope of the Project Rule

In eminent domain, any decrease or increase in the fair market value of real property, prior to the date of valuation, caused by the project for which the property is to be acquired, or by the likelihood that the property would be acquired for the project other than that due to physical deterioration within the reasonable control of the owner. (See Uniform Relocation Assistance and Real Property Acquisition Policy Act of 1970 (P.L. 91-646) 42 U.S.C. §4651 (3).) (B)

Scope of Work

The type and extent of research and analyses in appraisal or appraisal review assignment. (B)

Seasonal Dwelling

A dwelling not intended for year-round use, e.g., a vacation home such as a beach house or ski lodge (B), or in Minnesota a cabin or cottage.

Secondary Data

Information that is not gathered in its original form by the analyst.  See also primary data. (B)


Zoning regulations that designate the distance a building must be set back from the front, rear, and sides of the property lines. (B)


  1. The act of removing anything attached or affixed to land, or a part of the land itself, that causes a change of its character from real property to personal property.
  2. The separation of mineral ownership from land ownership; a conveyance of land in which mineral rights are expected or reserved.
  3. The termination of a joint tenancy or a tenancy in common. (B)

Short-Lived Item

A building component with an expected remaining economic life that is shorter than the remaining economic life of the entire structure. (B)


Personalized evidence indicating authentication of the work performed by the appraiser and the acceptance of the responsibility for contents, analyses, and the conclusions in the report. (B)

Single-Family House

The dwelling that is designated for occupancy by one family. (B)


Land that is improved so that it is ready to be used for a specific purpose. (B)

Site Improvements

Improvements on and off the site that make it suitable for its intended use or development. On-site improvements include grading, landscaping, paving, and utility hookups; off-site improvements include streets, curbs, sidewalks, drains, and connecting utility lines. (B)

Special Assessment

  1. An assessment against real estate levied by a public authority to pay for public improvements, e.g., sidewalks, street improvements, sewers; also called betterment tax.
  2. An amount levied against individual owners in a condominium or cooperative to cover their proportionate shares of a common expense. (B)

Special Benefits

In eminent domain valuation, the benefits that arise from the peculiar relation of the land in question to the public improvement, usually resulting from a change in its highest and best use. Special benefits may accrue to multiple parcels (such as all four quadrants of a newly constructed freeway interchange) because the parcels are directly benefitted in a similar manner, if not the same degree. (B)

Special-Purpose Property

A property with a unique physical design, special construction materials, or a layout that particularly adapts its utility to the use for which it was built; also called a special-design property. (B)

Special Use Permit

Permission granted by a local zoning agency that authorizes a use as a special exemption 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. (B)

Spot Zoning

An exception to the general zoning regulations; permits specific, usually small, parcels of land to be zone for a use that is not permitted in the surrounding area. See also zoning variance. (B)

State Rule

In condemnation, the process of determining just compensation by estimating the value of the portion to be acquired as part of the whole property plus the net severance damages; maybe referred to as a taking plus damages rule. See also before and after rule.  (B)

Step Up Depreciation

The readjustment of the value of an appreciated asset for tax purposes upon inheritance. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of inheritance, not the value at which the original party purchased the asset. (A)


An adverse public perception regarding a property; the identification of a property with a condition (e.g., environmental contamination, a grisly crime) that exacts a penalty on the marketability of the property and may also result in a diminution in value. (B)


A tract of land that has been divided into lots or blocks with streets, roadways, open areas, and other facilities appropriate to its development as residential, commercial, or industrial sites. (B)

Subdivision Development Method (Subdivision Analysis)

A method of estimating land value when subdivision development is the highest and best use of the parcel of land being appraised. When all direct and indirect costs and entrepreneurial incentive are deducted from an estimate of the anticipated gross sale price of the finished lots (or residences), the resultant net sales proceeds are then discounted to present value at a market derived rate over the development and absorption period to indicate the value of the land. (B)

Subject Property

The property that is appraised in an assignment.


A sublease is the renting of property by a tenant to a third party for a portion of the tenant’s existing lease contract. (A)


In a traditionalsubstitution problem scenario, a company’s management willingly deceives another by replacing higher quality assets (or projects) with lower quality assets (or projects), after a credit analysis has already been performed. (A)

Supply and Demand

The law of supply and demand is a theory that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines what effect the relationship between the availability of a particular product and the desire (or demand) for that product has on its price. Generally, low supply and high demand increase price and vice versa. (A) 

Surplus Land

Sometimes called “degraded,” “idle,” or “surplus” land, it is marked by its inability to produce crops of any kind or otherwise yield a profit. More specifically, crops produced on marginal land would be worth less than the cost of renting it. (A)


A survey is a drawing that can show a variety of characteristics of your property, including topographical features such as trees, creeks or hills, depending on the level of detail you need. Property surveys for real estate transactions can show property lines, easements and encroachments on the property of others, and major improvements.



@2018 Orion Appraisals

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