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Appraisal Dictionary
A B C D E
F G H I J
K L M N O
P Q R S T
U V W X Y
Z
Advocacy
Representing the cause or
interest of another, even if that cause or interest does not necessarily
coincide with one�s own beliefs, opinions, conclusions, or recommendations.
1
Appraisal
(n.) The act or process of
developing an opinion of value; an opinion of value. (adj.) Of or pertaining to
appraising and related functions such as appraisal practice or appraisal
services. (USPAP, 2002 ed.) 2
Appraisal Report
The written or oral
communication of an appraisal; the document transmitted to the client upon
completion of an appraisal assignment. Reporting requirements are set forth in
the Standards Rules in Standard 2 of the Uniform Standards of Professional
Appraisal Practice. 2
Broker's Price Opinion (BPO)
An opinion of property price rendered by a licensed real estate agent or broker. 4
Cash Equivalence
A price expressed in terms of
cash, as distinguished from a price expressed totally or partly in terms of the
face amounts of notes or other securities that cannot be sold at their face
amounts. Calculating the cash-equivalent price requires an appraiser to compare
transactions involving atypical financing to transactions involving comparable
properties financed at typical market terms. 2
Client
The party or parties who engage an appraiser (by
employment or contract) in a specific assignment. 2
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. 2
Deed in Lieu
A deed given by an owner or debtor in lieu of foreclosure by the lender or mortgagee. 4 See also Forclosure
Discounted Cash Flow Analysis
The procedure in which a
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 as well as the quantity and timing of the reversion and discounts
each to its present value at a specified yield rate. DCF analysis can be applied
with any yield capitalization technique and may be performed on either a
lease-by-lease or aggregate basis. 1
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 the takings clause, guarantees
payment of just compensation upon appropriation of private property.
2
Extraordinary Assumption
An assumption, directly related
to a specific assignment, 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 data
used in an analysis. An extraordinary assumption may be used in an assignment
only if:
- It is required to properly develop credible opinions and
conclusions;
- The appraiser has a reasonable basis for the extraordinary
assumption;
- Use of the extraordinary assumption results in a credible
analysis; and
- The appraiser complies with the disclosure requirements set forth
in USPAP for extraordinary assumptions.
FNMA
Federal National Mortgage
Association (FNMA). A private,
shareholder-owned company, created by Congress in 1938 as a part of the Federal
Housing Administration but became a private company in 1968, that purchases
mortgages from banks, trust companies, mortgage companies, savings and loan
associations, and insurance companies to help distribute funds for home
mortgages. 2
Foreclosure
The legal process in which a mortgagee forces the sale of a property to recover all or part of a loan on which the mortgagor has defaulted. 4
Form Report
An appraisal report presented on
a standard form such as those required by financial institutions, insurance
companies, and government agencies. The reporting requirements for form reports,
which are the same as for other types of reports, are set forth in the Standards
Rules relating to Standard 2 of the Uniform Standards of Professional Appraisal
Practice and the Appraisal Institute's Guide Note 3.
2
Highest and Best Use
The reasonably probable and
legal use of vacant land or an improved property, which 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. 2
Home Valuation Code of Conduct (HVCC)
A joint agreement between Freddie Mac, the Federal Housing Finance agency (FHFA), and the New York State Attorney General in an attempt to enhance the independence and integrity of the appraisal process and to provide added protections for home buyers, mortgage investors, and the housing market. Effective for single-family mortgages with loan application dates on or after May 1, 2009, Freddie Mac Seller/Servicers must represent and warrant that the appraisal report is obtained in a manner consistent with the Home Valuation Code of Conduct. The code prohibits undue influence on the appraiser. The sale of the following mortgages is excluded from the representation and warranty: FHA/VA Mortgages, Section 184 Native American Mortgages, and Section 502 Guaranteed Rural Housing Mortgages. 4
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 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. A
hypothetical condition may be used in an assignment only if:
- Use of the hypothetical condition is clearly required for legal
purposes, for purposes of reasonable analysis, or for purposes of comparison;
- Use of the hypothetical condition results in a credible analysis;
and
- The appraiser complies with the disclosure requirements set forth
in USPAP for hypothetical conditions.
- (USPAP, 2002 ed.)
2
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 in two ways. One year's income
expectancy can be capitalized at a market-derived capitalization rate or at a
capitalization rate that reflects a 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. 2
Intended Use
The use or uses of an appraiser�s reported appraisal,
appraisal review, or appraisal consulting assignment opinions and conclusions,
as identified by the appraiser based on communication with the client at the
time of the assignment. 1
Intended User
The client and any other party as identified, by name or
type, as users of the appraisal, appraisal review, or appraisal consulting
report by the appraiser on the basis of communication with the client at the
time of the assignment. 1
Leadership in Energy and Environment Design (LEED)
A voluntary green building certification system developed by the U.S. Green Building Council, which provides third-party verification that a building or community was designed and built using strategies aimed at improving performance across all the metrics that matter most: energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental quality, and stewardship of resources and sensitivity to their impacts. (USGBC). 4
Leasehold Interest
The interest held by the lessee
(the tenant or renter) through a lease transferring the rights of use and
occupancy for a stated term under certain conditions. See also negative
leasehold; positive leasehold. 2
Loan to Value Ratio
The ratio between a mortgage
loan and the value of the property pledged as security, usually expressed as a
percentage. Also called loan ratio. 2
Market
Value
"Market
Value" is the most probable price which a property should bring in a
competitive and open market under all conditions requisite to a fair sale, the
buyer and seller, each acting prudently, knowledgeably and assuming the price is
not affected by undue stimulus. Implicit
in this definition is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions whereby:
- Buyer and seller are typically motivated;
- Both parties are well informed or well advised, and each acting in what
he considers his own best interests;
- A reasonable time is
allowed for exposure in the open market;
- Payment is made in terms of cash in U.S. dollars or in terms of financial
arrangements comparable thereto; and
- The price represents the normal considerations for the property sold,
unaffected by special or creative financing or sales concessions granted by
anyone associated with the sale. 3
Narrative Report
The most complete type of
written appraisal, appraisal consulting, or appraisal review report; includes an
introduction, the premises of the appraisal, the presentation of data, an
analysis of data and conclusions, and often addenda. In a narrative report, the
appraiser supports and explains the opinions and conclusions presented and
demonstrates the soundness of the final value opinion. 2
Net Net Net Lease
A net lease under which the
lessee assumes all expenses of operating a property, including both fixed and
variable expenses and any common area maintenance that might apply, but the
landlord is responsible for structural repairs. Also called triple net lease.
See also lease. 2
Net Operating Income (NOI)
The actual or anticipated net
income that remains after all operating expenses are deducted from effective
gross income, but before mortgage debt service and book depreciation are
deducted; may be calculated before or after deducting replacement reserves.
2
Real Estate Owned (REO)
In common usage, real estate that has been acquired by a lending institution through foreclosure of mortgage loans, i.e., what is more correctly called other real estate owned (OREO). In best usage, the terms owned real estate (ORE) and real estate owned (REO) describe bank premises used for banking operations, and the term other real estate owned (OREO) describes foreclosed real estate held for liquidation.
4
Sales Comparison
Approach
A set of procedures in which a
value indication is derived by comparing the property being appraised to similar
properties that have been sold recently, then applying appropriate units of
comparison and making adjustments to the sale prices of the comparables based on
the elements of comparison. The sales comparison approach may be used to value
improved properties, vacant land, or land being considered as though vacant; it
is the most common and preferred method of land valuation when an adequate
supply of comparable sales are available.
2
Scope of Work
The amount and type of
information researched and the analysis applied in an assignment. Scope of work
includes, but is not limited to, the following:
- The degree to which the property is inspected or identified;
- The extent of research into physical or economic factors that
could affect the property;
- The extent of data research; and
- The type and extent of analysis applied to arrive at opinions or
conclusions. 2
Short Sale
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.
4 See also Deed in Lieu; Foreclosure
USPAP
Uniform Standards of
Professional Appraisal Practice.
Current standards of the
appraisal profession, developed for appraisers and the users of appraisal
services by the Appraisal Standards Board of The Appraisal Foundation. The
Uniform Standards set forth the procedures to be followed in developing an
appraisal, analysis, or opinion and the manner in which an appraisal, analysis,
or opinion is communicated. They are endorsed by the Appraisal Institute and by
other professional appraisal organizations.
Workfile
Documentation necessary to support an appraisers
analyses, opinions, and conclusions.
- Reprinted with permission from the Uniform Standards of Professional
Appraisal Practice and Advisory Opinions 2005 Edition, Copyright 2005 by The
Appraisal Foundation, Washington, DC
- Reprinted with permission from The Dictionary of Real Estate Appraisal, fourth
edition Copyright 2002 by the Appraisal Institute, Chicago, IL.
- From the OCC's Final
Rule, 12 CFR Part 34, Subpart C-Appraisals, Section 34.42(g), effective August
24, 1990, as amended at 57 FR 12202, April 9, 1992; 59 FR 29499, June 7, 1994
- Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute), 2010.
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