Colorado's #1 Rated Appraisal Company

Colorado’s #1 Rated Appraisal Company

Intro

Real estate appraisal comes with a plethora of specific terminology that is not always easily discernible to the general public. Please use this page to browse general commonly used terms. If the term used is not posted, please add your “comment” with the term you are looking for.

Appraisal Jargon

Business Enterprise Value

A term applied to the concept of the value contribution of the total intangible assets of a continuing business enterprise such as marketing and management skill, an assembled work force, working capital, trade names, franchises, patents, trademarks, contracts, leases, and operating agreements.

Disposition Value

The most probable price that a specified interest in real property is likely to bring under all of the following conditions:

  1. Consummation of a sale will occur within a limited future marketing period specified by the client.
  2. The actual market conditions currently prevailing are those to which the appraised property interest is subject.
  3. The buyer and seller is each acting prudently and knowledgeably.
  4. The seller is under compulsion to sell.
  5. The buyer is typically motivated.
  6. Both parties are acting in what they consider their best interests.
  7. An adequate marketing effort will be made in the limited time allowed for the completion of a sale.
  8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
  9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

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:  (1) it is required to properly develop credible opinions and conclusions; (2) the appraiser has a reasonable basis for the extraordinary assumption; (3) use of the extraordinary assumption results in a credible analysis; and (4) the appraiser complies with the disclosure requirements set for in USPAP for extraordinary assumptions.

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.

Going-Concern Value

The market value of all the tangible and intangible assets of an established and operating business with an indefinite life, as if sold in aggregate; also called value of the going concern. (2) Tangible and intangible elements of value in a business enterprise resulting from factors such as having a trained work force, an operational plant, and the necessary licenses, systems, and procedures in place.  (3) The value of an operating business enterprise.  Goodwill may be separately measured but is an integral component of going-concern value.

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:  (1) use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison; (2) use of the hypothetical condition results in a credible analysis; and (3) the appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions.

Insurable Value

The value of an asset or asset group that is acknowledged by an insurance policy; can be estimated by deducting costs of noninsurable items (e.g., land value) from market value.  (2) Value used by insurance companies as the basis for insurance.  Often considered to be replacement or reproduction cost plus allowances for debris removal or demolition less deterioration and noninsurable items.  Sometimes cash value or market value, but often entirely a cost concept.  (Marshall & Swift LP)

Leased Fee Interest

An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease.

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.

Liquidation Value

The most probable price that a specified interest in real property is likely to bring under all of the following conditions:

  1. Consummation of a sale will occur within a severely limited future marketing period specified by the client.
  2. The actual market conditions currently prevailing are those to which the appraised property interest is subject.
  3. The buyer is acting prudently and knowledgeably.
  4. The seller is under extreme compulsion to sell.
  5. The buyer is typically motivated.
  6. The buyer is acting in what he or she considers his or her best interest.
  7. A limited marketing effort and time will be allowed for the completion of a sale.
  8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
  9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Market Value

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 and 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:

  1. Buyer and seller are typically motivated;
  2. Both parties are well informed or well advised and acting in what they consider their best interests;
  3. A reasonable time is allowed for exposure in the open market;
  4. Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
  5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Prospective Value Opinion

A forecast of the value expected at a specified future date. A prospective value opinion is most frequently sought in connection with real estate projects that are proposed, under construction, or under conversion to a new use, or those that have not achieved sellout or a stabilized level of long-term occupancy at the time the appraisal report is written.

Retrospective Value Opinion

The value of the property as of a previous date. This may be used in matters of probate or descendant estate taxation where the value on the date of death may be required.

Sandwich Lease

A lease in which an intermediate, or sandwich, leaseholder is the lessee of one party and the lessor of another. The owner of the sandwich lease is neither the fee owner nor the user of the property; he or she may be a leaseholder in a chain of leases, excluding the ultimate sublessee.

Stabilized Expense

A projected expense that is subject to change, but has been adjusted to reflect an equivalent, stable annual expense.

Stabilized Income

Income at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property; projected income that is subject to change, but has been adjusted to reflect an equivalent, stable annual income.

Stabilized Occupancy

Occupancy at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property; the optimum range of long-term occupancy that an income-producing real estate project is expected to achieve under competent management after exposure for leasing in the open market for a reasonable period of time at terms and conditions comparable to competitive offerings.

Stabilized Value

A value opinion that excludes from consideration any abnormal relationship between supply and demand such as is experienced in boom periods, when cost and sale price may exceed the long-term value, or during periods of depression, when cost and sale price may fall short of long-term value.  (2) A value opinion that excludes from consideration any transitory condition that may cause excessive construction costs, e.g., a bonus or premium for material, the abnormal inefficiency of labor, the cost of delay or an excessive sale price, e.g., a premium paid due to a temporary shortage of supply.

Value As Is

The value of specific ownership rights to an identified parcel of real estate as of the effective date of the appraisal; relates to what physically exists and is legally permissible and excludes all assumptions concerning hypothetical market conditions or possible rezoning.

Value in Use

The value a specific property has to a specific person or specific firm as opposed to the value to persons or the market in general.  Special-purpose properties such as churches, schools, and public buildings, which are seldom bought and sold in the open market, can be valued on the basis of value in use.  The value in use to a specific person may include a sentimental value component.  The value in use to a specific firm may be the value of the plant as part of an integrated multiplant operation.

Unless otherwise stated, these terms are from: The Dictionary of Real Estate Appraisal, Fourth Edition, Appraisal Institute, 2002.

Leave a Comment

Your email address will not be published. Required fields are marked *