Terms and Definitions

What is an Appraisal?

According to Uniform Standards of Professional Appraisal Practice (USPAP) developed by the Appraisal Standards Board of The Appraisal Foundation, an appraisal is the act or process of developing an opinion of value.

What is a Property Valuation?

Property valuation is the process which determines the economic value of real estate.

What is Market Value?

Market Value is what a property is worth.

What is Fair Market Value?

Fair Market Value is the price at which buyers and sellers with a reasonable knowledge of pertinent facts and not acting under any compulsion are willing to do business. Fair market value is not always equal to the sale price. (Merriam Webster dictionary)

How is Fair Market Value determined?

Fair market value is determined through demand, utility, scarcity and transferability also known as DUST: 1. Demand - the willingness and ability to purchase the property. 2. Utility - ability of the real estate to satisfy the use or need of prospective purchasers. 3. Scarcity - a limited supply of real estate to purchase. 4. Transferability - the ease at which a parcel of real estate can be legally transferred to a new owner.

How do you determine the Market Value of a property?

There are three approaches that an appraiser uses to determine the Market Value of a property and they are used for the following: 1. The Sales Comparison Approach - useful when a number of similar properties have recently been sold or are currently for sale in the subject property’s market. 2. The Cost Approach - useful in valuing new or nearly new improvements and properties that are not frequently exchanged in the market. 3. The Income Approach - when income-producing real estate is purchased as an investment, and earning power is the critical element affecting property value from an investor’s point of view.

Types of Properties Defined

Commercial Real Estate

Property that is used for business purposes only and includes; retailers of all kinds, office space, hotels, strip malls, restaurants and convenience stores.

Industrial Real Estate

Land and building used or appropriate for industrial activities such as; production, manufacturing, assembly, warehousing, research, distribution, or offices for tangible goods not services.

Special Purpose Real Estate

Property that is used for one type of use or limited use because of a special design or layout, construction materials, or other features that limit the buildings use such as an ice rink, church, school, theater or public utility.

Multifamily

(also known as multi dwelling unit or MDU) is a classification of housing where multiple separate housing units for residential inhabitants are contained within one building or several buildings within one complex. A common form is an apartment building.

Condominium Complex

A building or complex of buildings containing a number of individually owned apartments or houses.

Townhome Development

A multi-story house in a modern housing development which is attached to one or more similar houses by shared walls.

Types of Use Featured in Appraisal Reports Explained

Value-in-use

The present value of future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. The value of a property assuming a specific use, which may or may not be the property's highest and best use.