Frequently Found Terms
Appraisal:
An opinion of value; the act or process of developing an opinion of value.
Absorption Study:
This is the study aimed to determine the rates of occupation, rent or sale of a property, or of a set of properties, in relation with time.
Cost:
The total expenditure to develop an improvement; applies to either reproduction of an identical improvement or replacement with functional equivalent, not exchange (price)
Cost – Benefit Study:
This is the set of studies carried out to determine the relation between the cost of an investment and the benefits obtained from it.
Due Diligence Study:
In the acquisition of a property or in an investment transaction, this study is composed of the research works about the contract terms and about the characteristics of the property and its market, before executing the transaction.
In an appraisal, it represents the research works aimed to find the factors that may affect the property's utility and value.
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:
An operating business enterprise that is expected to continue. It refers to special type of properties (hotels, restaurants, marinas, bowling, athletic clubs, etc) in which the physical part of the property (Real Estate Assets) is an integral part of an operating business.
Going Concern Premise:
One of the premises under which the total assets of a business (TAB) can be valued; the assumption that the company is expected to continue operating well into the future (usually indefinitely). Under the going-concern premise, the value of a business as a going concern is equal to the sum of the value of the tangible assets and the value of the intangible assets, which may include the value of excess profit, where asset values are derived consistent with the going-concern premise.
Highest and Best Use Analysis:
This is the execution of the necessary studies to determine the use that, being physically possible, legally allowed, and financially feasible, provides the highest value to an estate, either an unoccupied land or an improved property.
Intangible Property:
Nonphysical assets, included but not limited to franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities, and contracts, as distinguished from physical assets such as facilities and equipment.
Intended Use:
The use or uses of an appraiser's reported appraisal, appraisal review, or appraisal consulting assignment opinion and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment.
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.
Investment Feasibility Analysis:
This is an analysis aimed to find out whether a specific project meets the predefined objectives. Such project's profitability is analyzed under different criteria, including the investor's perspective.
Price:
The amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding their transaction.
Purpose of an Appraisal:
The stated reason for an appraisal assignment, i.e., to develop an opinion of the defined value of any real property interest.
Real Estate:
Physical land and appurtenances attached to the land; an identified parcel or tract of land, including improvements.
Real Property:
All interests, benefits, and rights inherent in the ownership of physical real estate; the bundle of rights with which the ownership of the real estate is endowed.
Tangible Property:
Property that can be perceived with the senses; includes land, fixed improvements, furnishings, merchandise, cash, and other items of working capital used in an enterprise.
Value:
The monetary relationship between properties and those who buy, sell, or use those properties. Value expresses an economic concept. As such, it is never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value.
Most frequently used values
Assessed Value:
A value set on real estate and personal property by a government as a basis for levying taxes
Book Value:
The net amount shown for an asset on the balance sheet. It equals the gross cost less the related valuation account. Since book value is based on historical cost, it will differ from market value. Book value may be a going-concern value
Going-Concern Value:
The market value of all the tangible and intangible assets o fan established and operating business with an indefinite life, as if sold in aggregate.
Intangible Value:
A value that cannot be imputed to any part of the physical property, e.g., the excess value attributable to a favorable lease or mortgage, the value attributable to goodwill.
Insurable Value:
The value of an asset or asset group that is covered by an insurance policy; can be estimated by deducting costs of non-insurable items (e.g. land value) from market value. Often considered to be replacement or reproduction cost plus allowances for debris removal or demolition less deterioration and non-insurable items.
Investment Value:
The specific value of an investment for a particular investor or class of investors based on individual investment requirements; distinguished from market value, which is impersonal and detached.
Liquidation Value:
The most probable price that a specified interest in real property is likely to bring under all of the following conditions:
- Consummation of a sale will occur within a severely limited future marketing period specified by the client.
- The actual market conditions currently prevailing are those to which the appraised property interest is subject.
- The buyer is acting prudently and knowledgeably.
- The seller is under extreme compulsion to sell.
- The buyer is typically motivated.
- The buyer is acting in what he or she considers his or her best interest.
- A limited marketing effort and time will be allowed for the completion of a sale.
- Payment will be made in cash 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, as of a specific date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specific property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and the seller acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.
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
Use Value:
The value a specific property has for a specific use. It represents a subjective concept of value.
Common Intended Use of Appraisals:
- Buy / Sell
- Financing
- Taxes
- Expropriation
- Litigation
- Patrimony
- Inheritance
- Insurance
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