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Appraisal 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 ABSORPTION RATE The ratio of the number of properties in an area that have been sold against the number available. Used to show the volatility of a market. ABSTRACTION METHOD This method of estimating the value of property uses similar properties available in the same market to extract the value of a parcel of land. ACCESSORY BUILDING A building separate from the main structure on a property. Often used for a specific purpose, such as a workshop, storage shed or garage. ACCRETION The natural growth of a piece of land resulting from forces of nature ACRE 43,560 square feet. A measurement of area. ACTUAL AGE The amount of time that has passed since a building or other structure was built. See also: EFFECTIVE AGE AD VALOREM TAX Taxes assessed based on the value of the land and improvements ADDENDUM A supplement to any document that contains additional information pertinent to the subject. Appraisers use an addendum to further explain items for which there was inadequate space on the standard appraisal form.

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ADJUSTABLE-RATE MORTGAGE (ARM) A type of mortgage where the interest rate varies based on a particular index, normally the prime lending rate. ADJUSTED BASIS The value of an asset (property or otherwise) that includes the original price plus the value of any improvement, and less any applicable depreciation. ADJUSTED SALES PRICE An estimate of a property's sales price, after adjustments have been made to account for differences between it and another comparable property. ADJUSTMENTS 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. AESTHETIC VALUE The additional value a property enjoys based on subjective criteria such as look or appeal. AFFIRMATION A declaration that a certain set of facts are truthful. AFFORDABILITY ANALYSIS A calculation used to determine an individual's likelihood of being able to meet the obligations of a mortgage for a particular property. Takes into account the down payment, closing costs and on-going mortgage payments. AGENT A person who has been appointed to act on behalf of another for a particular transaction. AMENITY Any feature of a property that increases its value or desirability. These might include natural amenities such as location or proximity to mountains, or man-made amenities like swimming pools, parks or other recreation. AMERICAN SOCIETY OF APPRAISERS An organization of appraisal professionals and others interested in the appraisal profession.

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AMORTIZATION The repayment of a loan through regular periodic payment. AMORTIZATION SCHEDULE The breakdown of individual payments throughout the life of an amortized loan, showing both principal contribution and debt service (interest) fees. AMORTIZATION TERM The length of time over which an amortized loan is repaid. Mortgages are commonly amortized over 15 or 30 years. ANNUAL PERCENTAGE RATE (APR) The rate of annual interest charged on a loan. ANNUITY A sum of money paid at regular intervals, often annually. ANTICIPATION The perception that value is created by the exception of benefits to be derived in the future. APPRAISAL (Noun) The act or process of developing an opinion of value; an opinion of value. (Adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services. (USPAP) APPRAISAL FOUNDATION A not-for-profit educational organization established by the appraisal profession in the United States in 1987. It is dedicated to the advancement of professional valuation and responsible for establishing, improving, and promoting the Uniform Standards of Professional Appraisal Practice (USPAP). APPRAISAL PRINCIPLES The basic building blocks of the property valuation process, including property inspection, market analysis and basic economics. APPRAISAL REPORT The end result of the appraisal process, usually consists of one major, standardized form such as the Uniform Residential Appraisal Report form 1004, as well as all supporting documentation and additional detail information. The purpose of the report is to convey the estimated value of the subject property and support that estimate with corroborating information.

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APPRAISAL REVIEW (Noun) The act or process of developing an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment; (Adjective) of or pertaining to an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment. (USPAP) APPRAISAL STANDARDS BOARD (ASB) An independent board of the APPRAISAL FOUNDATION, which writes, amends, and interprets USPAP. The ASB is composed of up to seven appraisers appointed by the Foundation's Board of Trustees. The ASB holds public meetings throughout the year to interpret and amend USPAP. APPRAISER One who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective. (USPAP) APPRECIATION The natural rise in property value due to market forces. 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. ASSEMBLAGE 1. The combining of two or more parcels, but not necessarily contiguous, into one

ownership or use; the resulting increase in value is called plottage. 2. The combining of separate properties into units, sets, or groups, i.e., integration or

combination under unified ownership. 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. ASSESSMENT The function of assigning a value to a property for the purpose of levying taxes. ASSESSMENT RATIO The comparative relationship of a property's assessed value to its market value.

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ASSESSOR The jurisdictional official who performs the assessment and assigns the value of a property. ASSET Any item of value which a person owns. 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. (USPAP) ATTACHED HOUSING Any number of houses or other dwellings which are physically attached to one another, but are occupied by a number of different people. The individual houses may or may not be owned by separate people as well. 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.

AVERAGE DAILY TRAFFIC (ADT) A 24-hour traffic volume that should be qualified by stating a time period.

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B 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. BILL OF SALE A physical receipt indicating the sale of property. BLIGHTED AREA Any region of a city or town that has fallen into disrepair or otherwise has become undesirable. BOMA STANDARD The standard method of measurement for office buildings as defined by the Building Owners and Managers Association. -Visit BOMA for more information. BONA FIDE Made or carried out in good faith; sincere. BRIDGE FINANCING An interim loan made to facilitate the purchase of a new home before the buyer's current residence sells and its equity is available to fund the new purchase. BROKER An individual who facilitates the purchase of property by bringing together a buyer and a seller. BUFFER ZONE A segment of land between two disparate municipal zones which acts as a shield to keep one zone from encroaching upon the other. Often used to separate residential districts from commercial areas. BUILDING CODE Regulations that ensure the safety and material compliance of new construction within a municipality. Building codes are localized to ensure they are adequate to meet the risk of common hazards.

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BUILDING LINE OR SETBACK The statutory distance between buildings and the property line, imposed by municipalities, home associations, or other agreements. BUILT-INS Specific items of personal property which are installed in a real estate improvement such that they become part of the building. Built-in microwave ovens and dishwashers are common examples. 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 none of these rights. BUNGALOW A one-story, home-style dating from the early twentieth century. Often characterized by a low-pitched roof.

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C CAPE COD COLONIAL A single-story house style made popular in New England. Often characterized by a steep roof with gables. CAPITAL Accumulated goods and money which is most often used to generate additional income. CAPITAL EXPENDITURE An outlay of funds designed to improve the income-producing capabilities of an asset or to extend its economic life. CAPITALIZATION RATE 1. Any rate used to convert income into value. 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. 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. CASH FLOW The periodic income attributable to the interests in real property. CAVEAT EMPTOR Literally translated: ''Let the buyer beware.'' A common business tenet whereby the buyer is responsible for verifying any and all claims by the seller of property. CERTIFICATE OF OCCUPANCY Issued by an appropriate jurisdictional entity, this document certifies that a building complies with all building codes and is safe for use or habitation. CERTIFICATE OF REASONABLE VALUE (CRV) Usually based on an independent appraisal, a CRV for a particular property establishes the maximum amount which can be secured by a VA mortgage.

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CERTIFICATE OF TITLE A document designating the legal owner of a parcel of real estate. Usually provided by a title or abstract company. CERTIFICATION A part of an appraisal report in which the appraiser certifies that the work was completed according to the applicable standards. CERTIFIED GENERAL APPRAISER Generally, any professional who has met the local or state requirements, and passed the appropriate certification exam, and is capable of appraising any type of property. CERTIFIED RESIDENTIAL APPRAISER A sub-classification of appraiser who is only licensed to appraise residential property, usually up to four units. CHAIN OF TITLE The complete history of ownership of a piece of property. CHATTEL Any personal property which is not attached to or an integral part of a property. Chattel is not commonly taken into consideration when appraising the value of real property. CHANGE The result of the cause and effect relationship among the forces that influence real property value. CLEAR TITLE Ownership of property that is not encumbered by any counter-claim or lien. CLIENT 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. See also intended user. CLOSING The process whereby the sale of a property is consummated with the buyer completing all applicable documentation, including signing the mortgage obligation and paying all appropriate costs associated with the sale (CLOSING COSTS).

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CLOSING COSTS All appropriate costs generated by the sale of property which the parties must pay to complete the transaction. Costs may include appraisal fees, origination fees, title insurance, taxes and any points negotiated in the deal. COLLATERAL An asset which is placed at risk to secure the repayment of a loan. CO-MAKER A second party who signs a loan, along with the borrower, and becomes liable for the debt should the borrower default. 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. COMMISSION A percentage of the sales price or a fixed fee negotiated by an agent to compensate for the effort expended to sell or purchase property. COMMON AREA ASSESSMENTS Fees which are charged to the tenets or owners of properties to cover the costs of maintaining areas shared with other tenets or owners. Commonly found in condominium, PUD or office spaces. COMMON AREAS Any areas, such as entryways, foyers, pools, recreational facilities or the like, which are shared by the tenets or owners of property nearby. Commonly found in condominium, PUD or office spaces. COMMUNITY PROPERTY In many jurisdictions, any property which has been acquired by a married couple. The ownership of the property is considered equal unless stipulated otherwise by both parties. COMPARABLES An abbreviated term used by appraisers to describe properties which are similar in size, condition, location and amenities to a subject property whose value is being determined. In best usage, the thing being compared should be specified e.g. comparable sales, comparable properties, and comparable rents.

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COMPETENCE 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 of 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. COMPETITION 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. COMPOUND INTEREST Interest paid on the principal amount, as well as any accumulated interest. 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. CONCESSIONS Additional value granted by a buyer or seller to entice another party to complete a deal. CONDEMNATION The official process by which a property is deemed to be uninhabitable or unusable due to internal damage or other external conditions. The process by which a government agency takes private property for public use.

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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. See also transactional adjustments. CONDOMINIUM 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.

CONDOMINIUM CONVERSION Commonly, the conversion of a rental property such as an apartment complex into a CONDOMINIUM-style complex where each unit is owned rather than leased. CONFORMITY The appraisal principle that real property value is created and sustained when the characteristics of the property conform to the demands of its market. CONSTRUCTION LOAN A loan made to a builder or home owner that finances the initial construction of a property, but is replaced by a traditional mortgage one the property is completed. CONTIGUOUS Connected to or touching along an unbroken boundary CONTINGENCY Something that must occur before something else happens. Often used in real estate sales when a buyer must sell a current home before purchasing a new one. Or, when a buyer makes an offer that requires a complete home inspection before it becomes official. 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. As differentiated from a preservation easement. CONSEQUENTIAL DAMAGES Damage to property arising as a consequence of a taking over and above direct damages.

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CONTRIBUTION 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 its 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, resulting from the addition or deletion of a property component. Also called deprival value in some countries. CONVENTIONAL MORTGAGE A traditional, real estate financing mechanism that is not backed by any government or other agency (FHA, VA, etc.). CORPORATE RELOCATION A situation where a person's employer pays all or some of the expenses associated with moving from one location to another, usually over a substantial distance. Relocation expenses often include the amounts, such as brokerage fees, incurred in the selling and buying of the employee's primary residence. 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. COST TO CURE The cost to restore an item of deferred maintenance to new or reasonably new condition. 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. COVENANT A stipulation in any mortgage that, if not met, can be cause for the lender to foreclose. CREDIT A loan of money for the purchase of property, real or personal. Credit is either secured by an asset, such as a home, or unsecured.

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CUL-DE-SAC A dead-end street. One with only one entrance/exit. CURABLE FUNCTIONAL OBSOLESCENCE An element of depreciation; curable defect caused by a flaw in the structure, materials, or design, which can be practically and economically corrected. CURABLE PHYSICAL DEPRECIATION A form of physical deterioration that can be practically and economically corrected as of the effective date of appraisal.

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D DAMAGES 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. DEBT An obligation to repay some amount owed. This may or may not be monetary. DEBT EQUITY RATIO The ratio of the amount a mortgagor still owes on a property to the amount of equity they have in the home. Equity is calculated at the fair-market value of the home, less any outstanding mortgage debt. DEED A document indicating the ownership of a property. DEED-IN-LIEU (OF FORECLOSURE) A document given by a borrower to a lender, transferring title of the property. Often used to avoid credit-damaging foreclosure procedures. DEED OF TRUST A document which transfers title in a property to a trustee, whose obligations and powers are stipulated. Often used in mortgage transactions. DEED OF RECONVEYANCE A document which transfers ownership of a property from a Trustee back to a borrower who has fulfilled the obligations of a mortgage. DEED OF RELEASE A document which dismisses a lien or other claim on a property. DEED OF SURRENDER A document used to surrender any claim a person has to a property. DEFAULT The condition in which a borrower has failed to meet the obligations of a loan or mortgage.

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DEFERRED MAINTENANCE Needed repairs or replacement of items that should have taken place during the course of normal maintenance. DELINQUENCY The state in which a borrower has failed to meet payment obligations on time. DEPOSIT Cash given along with an offer to purchase property, Also called EARNEST MONEY. DEPRECIATION 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. The natural decline in property value due to market forces or depletion of resources.

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

DESK REVIEW An appraisal review in which the reviewer's scope of work does not include an inspection of the subject property. DESKTOP APPRAISAL An appraisal in which the appraiser's scope of work does not include an inspection of the subject property or comparables. DETACHED SINGLE-FAMILY HOME A single building improvement intended to serve as a home for one family. DETERIORATION 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. 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.

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DISCOUNT RATE The yield rate used to convert future payments or receipts into present value; usually considered to be a synonym for yield rate. 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. DISTRESS SALE A sale involving a seller acting under undue distress. DISTRESSED PROPERTY A mortgaged property which has been foreclosed on. DOWN PAYMENT An amount paid in cash for a property, with the intent to mortgage the remaining amount due. DRIVE BY APPRAISAL An appraisal in which the scope of work includes an exterior-only viewing of the subject property. DUPLEX A single-building improvement which is divided and provides two units which serve as homes to two families. DWELLING A house or other building which serves as a home.

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E EARNEST MONEY DEPOSIT A cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer. EASEMENT The right of a non-owner of property to exert control over a portion or all of the property. For example, power companies often own an easement over residential properties for access to their power lines. 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 DEPRECIATION The decline in property value caused by external forces, such as neighborhood blight or adverse development. ECONOMIC LIFE The amount of time which any income-producing property is able to provide benefits to its owner. Economic life also applies to non-income producing properties. It is the period of time over which a building improvement contributes value to the land. EFFECTIVE AGE The subjective, estimated age of a property based on its condition, rather than the actual time since it was built. Excessive wear and tear can cause a property's effective age to be greater than its actual age. 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. 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.

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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. 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. ENCROACHMENT 1. Trespassing on the domain of another. A building or other improvement on one

property which invades another property or restricts its usage. 2. Partial or gradual displacement of an existing use by another use, e.g., locating

commercial or industrial improvements in residential district.

ENCUMBRANCE Any claim or liability that affects our limits the title to property. An encumbrance can affect the title such as the mortgage or other lien, or it can affect the physical condition of the property such as an easement. An encumbrance cannot prevent the transfer of possession, but it does remain after the transfer. 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 earned on a development or improvement. 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. An entrepreneur is motivated by the prospect of future value advancement (i.e., the entrepreneurial incentive). An 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.

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EQUITY The difference between the fair market value of a property and that amount an owner owes on any mortgages or loans secured by the property. EQUITY BUILDUP The natural increase in the amount of equity an owner has in a property, accumulated through market appreciation and debt repayment. ERRORS AND OMISSIONS INSURANCE An insurance policy taken out by appraisers to cover their liability for any mistakes made during the appraisal process. ESCROW An amount retained by a third party in a trust to meet a future obligation. Often used in the payment of annual taxes or insurance for real property. ESTATE 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 to heirs upon death are often referred to as the estate.

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

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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. 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 four considerations in determining the reliability of expert testimony - testing, peer review, error rates, and acceptability and the relevant scientific community. EXPOSURE TIME 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. Exposure time is a retrospective opinion based on an analysis of past events assuming a competitive and open market. (USPAP) EXTERNAL OBSOLESCENCE (ECONOMIC OBSOLESCENCE) An element of depreciation; a diminution in value caused by negative externalities and generally incurable on the part of the owner, landlord, or tenant. EXTRACTION 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.

EXTRAORDINARY ASSUMPTION An assignment-specific assumption, as of the effective date regarding uncertain information used in an analysis, which, if found to be false, could alter the appraiser's opinions or conclusions. Uncertain information might include physical, legal, or economic characteristics of the subject property; or conditions external to the property, such as market conditions or trends; or the integrity of the data used in an analysis. (USPAP)

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F FACADE The front exposure of any building. Often used to describe an artificial or false front which is not consistent with the construction of the rest of the building. FAIR MARKET VALUE (FMV) The price at which two unrelated parties, under no duress, are willing to transact business. 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: 1. The price at which the property would sell for on the open market. It is the price that

would be agreed on between a willing buyer and a willing seller, with both being required to act, and both having reasonable knowledge of relevant facts. (IRS Publication 561)

2. The California Code of Civil Procedure (Section 1263.320(a)) defines fair market value as follows:

3. 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.

FANNIE MAE A private, shareholder-owned company that works to make sure mortgage money is available for people to purchase homes. Created by Congress in 1938, Fannie Mae is the nation's largest source of financing for home mortgages. FEASIBILITY ANALYSIS A study of the cost-benefit relationships of an economic endeavor. (USPAP) FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) The U.S. Government agency created in 1933 which maintains the stability of and public confidence in the nation's financial system by insuring deposits and promoting safe and sound banking practices. FEDERAL HOUSING ADMINISTRATION (FHA) A sub-agency of the U.S. Department of Housing and Urban Development created in the 1930's to facilitate the purchase of homes by low-income, first-time home buyers. It currently provides federally-subsidized mortgage insurance for private lenders.

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FEE SIMPLE A complete, unencumbered ownership right in a piece of property. 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. 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. A field 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. 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. 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. 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. 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. FIRST MORTGAGE The primary loan or mortgage secured by a piece of property. FIXED EXPENSE Operating expenses that generally do not vary with occupancy and that prudent management will pay whether the properties occupied or vacant.

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FIXED-RATE MORTGAGE (FRM) A mortgage which has a fixed rate of interest over the life of the loan. FIXTURE Any piece of personal property which becomes permanently affixed to a piece of real property. FLOOD INSURANCE Supplemental insurance which covers a home owner for any loss due to water damage from a flood. Often required by lenders for homes located in FEMA-designated flood zones. FLOOR PLAN The representation of a building which shows the basic outline of the structure, as well as detailed information about the positioning of rooms, hallways, doors, stairs and other features. Often includes detailed information about other fixtures and amenities. FORECLOSURE The process whereby a lender can claim the property used by a borrower to secure a mortgage and sell the property to meet the obligations of the loan. FORFEITURE The loss of property or money due to the failure to meet the obligations of a mortgage or loan secured by that property. 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. FRONTAGE The segment of a property that runs along a point of access, such as a street or water front. 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. 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.

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FUNCTIONAL OBSOLESCENCE The impairment of functional capacity of a property according to market tastes and standards. A decrease in the value of property due to a feature or lack thereof which renders the property undesirable. Functional obsolescence can also occur when the surrounding area changes, rendering the property unusable for its originally intended purpose.

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G GABLE ROOF A steeply angled, triangular roof. GAMBREL ROOF A ''barn-like'' roof, where the upper portion of the roof is less-steeply angled than the lower part. GENERAL LIEN A broad-based claim against several properties owned by a defaulting party. 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. GEORGIAN A classic, English-style hose characterized by simple rectangular shape and multiple stories. GINNIE MAE Government National Mortgage Association (GNMA) - A wholly owned corporation created in 1968 within the U.S. Department of Housing and Urban Development to serve low-to moderate-income homebuyers. 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.

GOING-IN CAPITALIZATION RATE Overall capitalization rate obtained by dividing a property’s net operating income for the first year after purchase by the sale price of the property. GOVERNMENT MORTGAGE Any mortgage insured or guaranteed by a government agency, such as the FHA or VA.

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GRADE The slope of land around a building. GRANTEE Any person who is given ownership of a piece of property. GRANTOR Any person who gives away ownership of a piece of property. GROSS BUILDING AREA (GBA) According to Fannie Mae, gross building area is the total finished area including any interior common areas, such as stairways and hallways of the improvements based on exterior measurements. It must include all finished above-grade and below-grade living areas, counting all interior common areas such as stairways, hallways, and storage rooms. It cannot count exterior common areas such as open stairways. It is the most common unit of comparison for two- to four-unit properties. GBA may be defined differently when used for office, industrial and agricultural buildings. GBA for these types of properties is often broken down further into Gross Leasable Area and/or Net Usable Area. GROSS LIVING AREA (GLA) According to Fannie Mae, the most common unit of comparison for one-unit properties, including units in PUD, condo, or co-op projects. Only finished above-grade areas can be used in calculating and reporting of above-grade room count and square footage for the gross living area. Exterior measurements should be used to calculate above-grade GLA, except that interior measurements should be used for units in condo or co-op projects. Gross living area does not include garages, basements or seasonal living areas such as porches, patios or decks. One standard of measurement used by some appraisers in calculating the gross living area of a single-family residence is the ANSI standard (American National Standards Institute).

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H HALF-SECTION 320 acres HEIGHT ZONING A municipal restriction on the maximum height of any building or other structure. HIDDEN AMENITIES Assets of a property which contribute to its value, but are not readily apparent. Examples might include upgraded or premium building materials. 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. 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. HIGHEST AND BEST USE OF PROPERTY AS IMPROVED The use that should be made of the property as it exists. An existing improvement should be renovated or retained 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. HIGHWAY EASEMENT A right granted or taken for the construction, maintenance, and operation of the highway. HOME INSPECTION A complete examination of a building to determine its structural integrity; uncover any defects in materials, systems or workmanship; uncover any potential infestations or damage from infestations; uncover any potential health, safety, environmental or building code issues. A home inspection is NOT what an appraiser does.

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HOMEOWNER'S ASSOCIATION An organization of home owners in a particular neighborhood or development formed to facilitate the maintenance of common areas and to enforce any building restrictions or covenants. HOMEOWNER'S INSURANCE A policy which covers a home owner for any loss of property due to accident, intrusion or hazard. HOUSING STARTS Newly constructed housing units; includes both single-family and multifamily domiciles. HUD-1 STATEMENT A standardized, itemized list, published by the U.S. Department of Housing and Urban Development (HUD), of all anticipated closing costs connected with a particular property purchase. 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. (USPAP)

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I IMPROVED LAND Any parcel of land which has been changed from its natural state through the creation of roads, buildings or other structures. IMPROVEMENTS Any item added to vacant land with the intent of increasing its value or usability. IMPROVEMENT RATIO The comparative value of a improved piece of land to its natural, unaltered state. INCOME APPROACH The process of estimating the value of property by considering the present value of a stream of income generated by the property. 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 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. INCOME PROPERTY A piece of property for which the highest and best use is the generation of income through rents or other sources. INCURABLE FUNCTIONAL OBSOLESCENCE An element of depreciation; a defect caused by a deficiency or superadequacy in the structure, materials, or design that cannot be practically or economically corrected. INCURABLE PHYSICAL DEPRECIATION A form of physical deterioration that cannot be practically or economically corrected as of the date of appraisal. INHERITANCE TAX A tax on the right to receive property by inheritance; as distinguished from estate tax.

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INSPECTION The examination of a piece of property, its buildings or other amenities. INSURABLE VALUE That portion of the value of an asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy. INSURABLE TITLE The title to property which has been sufficiently reviewed by a title insurance company, such that they are willing to insure it as free and clear. INTEREST RATE A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds. INTENDED USE The use(s) of an appraiser’s reported appraisal or appraisal review assignment results, as identified by the appraiser based on communication with the client at the time of the assignment. (USPAP) INTENDED USER The client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment. (USPAP)

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. 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. INVESTMENT PROPERTY Any piece of property that is expected to generate a financial return. This may come as the result of periodic rents or through appreciation of the property value over time.

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J JOINT TENANCY A situation where two or more parties own a piece of property together. Each of the owners has an equal share, and may not dispose of or alter that share without the consent of the other owners. JURISDICTIONAL EXCEPTION An assignment condition established by applicable law or regulation, which precludes an appraiser from complying with a part of USPAP. (USPAP)

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.

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L 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 may be 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.

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. LATENT DEFECTS Any defect in a piece of property which is not readily apparent, but which has an impact of the value. Structural damage or termite infestation would be examples of latent defects. LEASE 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. 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). LEASEHOLD ESTATE A type of property ''ownership'' where the holder actually has a long-term lease on the property. LEGAL DESCRIPTION The description of a piece of property, identifying its specific location in terms established by the municipality or other jurisdiction in which the property resides. Often related in specific distances from a known landmark or intersection.

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LEGAL 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. 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. LENDER The person or entity who loans funds to a buyer. In return, the lender will receive periodic payments, including principal and interest amounts. LESSEE One who has the right to occupancy and use of the property of another for a period of time according to a lease agreement. LESSOR One who conveys the rights of occupancy and use to others under lease agreement. 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 the appraisal was prepared. LIEN Any claim against a piece of property resulting from a debt or other obligation. LIKE-KIND PROPERTY Any property which is substantially similar to another property. LIMITING CONDITION A condition that limits the use of a report. LIQUID ASSET Any asset which can be quickly converted into cash at little or no cost, or cash itself LOAN-TO-VALUE RATIO (LTV) The comparison of the amount owed on a mortgaged property to its market value.

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LOCATION 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. 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. LOSS OF ACCESS Depriving an abutting owner of the inherent rights of ingress and to egress from the highway or street.

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M MANUFACTURED HOUSING Manufactured housing refers to Structures that are transportable in one or more sections. They are designed to be used as a dwelling when connected to the required utilities, which include the plumbing, heating, air-conditioning, and electrical systems contained therein. Manufactured Housing is designed and constructed to the federal Manufactured Housing Construction and Safety Standards (MHCSS), as evidenced by an affixed HUD Certification Label. Manufactured housing may also be referred to as mobile housing, sectionals, multi-sectionals, double-wide, triple-wide, or single-wide. (HUD Handbook 4000.1) MARGINAL LAND Land whose value has been diminished due to some internal defect or external condition. In most cases, the cost to correct the flaw or condition is as much or more than the expected return from the property. MARKETABILITY 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. MARKETABILITY ANALYSIS A process for examining the productive attributes of the specific property, its demand and supply, and its geographic market area. Marketability analysis is an essential part of the highest and best use conclusion for every valuation appraisal. MARKET CONDITIONS An element 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. MARKET PARTICIPANTS The parties involved in the transfer of property rights. Includes buyers, sellers, lessors, lessees, and brokers and their agents.

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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). 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.

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. An appraiser is cautioned to identify the exact definition of market value, and its authority, applicable in each appraisal completed for the purpose of market value. (USPAP)

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. (USPAP) MASTER ASSOCIATION An umbrella organization that is made up of multiple, smaller home owners associations. Often found in very large developments or condominium projects. 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.

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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. METES AND BOUNDS A traditional way of describing property, generally expressed in terms of distance from a known landmark or intersection, and then following the boundaries of the property back to its point of beginning. METROPOLITAN AREA The accumulated land in and around a city or other municipality which falls under the political and economic influence of that entity. MINERAL RIGHTS The legal right to exploit and enjoy the benefits of any minerals located below the surface of a parcel of land. MISREPRESENTATION A statement by one party in a transaction that is incorrect or misleading. Some misrepresentations are deemed to be intentional and thus may constitute fraud. Others, however, some are rendered through simple mistakes, oversights or negligence. 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. MORTGAGE A financial arrangement wherein an individual borrows money to purchase real property and secures the loan with the property as collateral. MORTGAGE BANKER A financial institution that provides primary and secondary mortgages to home buyers. MORTGAGE BROKER A person or organization that serves as a middleman to facilitate the mortgage process. Brokers often represent multiple mortgage bankers and offer the most appropriate deal to each buyer. MORTGAGEE The entity that lends money in a real estate transaction.

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MORTGAGE INSURANCE A policy that fulfills that obligations of a mortgage when the policy holder defaults or is no longer able to make payments. MORTGAGE INSURANCE PREMIUM (MIP) A fee that is often included in mortgage payments that pays for mortgage insurance coverage. MORTGAGE LIFE INSURANCE A policy that fulfills the obligations of a mortgage when the policy holder dies. MORTGAGOR The entity that borrows money in a real estate transaction. MULTIFAMILY DWELLING A building containing two or more dwelling units.

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N NATURAL VACANCY RATE The percentage of vacant properties in a given area that is the result of natural turnover and market forces. NEIGHBORHOOD LIFE-CYCLE The evolution of neighborhood use and demographics over time. Economic fluctuations, municipal zoning changes and population shifts can affect the life cycle. NEIGHBORHOOD A subsection of a municipality that has been designated by a developer, economic forces or physical formations. NET LEASABLE AREA The space in a development, outside of the common areas, that can be rented to tenants. NET LEASE A lease in which the landlord passes on all expenses to the tenant. 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. Sometimes referred to as a “triple-net” lease. Note: this term may have a different definition in some geographic areas and markets. 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). NEW ENGLAND COLONIAL An architectural style dating from early American history typified by a two-story building with clapboard siding. NON-CONFORMING USE The use of land for purposes contrary to the applicable municipal zoning specifications. Often occurs when zoning changes after a property is in use.

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NONLIQUID ASSET Any asset which cannot be quickly converted into cash at little or no cost.

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O OBSOLESCENCE The process of an asset’s value diminishing due to the development of more desirable alternatives or because of the degradation of its capabilities. Causes of obsolescence can include 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. OCCUPANCY A physical presence within and control of a property. OCCUPANCY RATE The percentage of properties in a given area that are occupied. OFF-SITE IMPROVEMENTS Buildings, structures or other amenities which are not located on a piece of property, but are necessary to maximize the use of the property or in some way contribute to the value of the property. OFF-STREET PARKING Designated parking spaces associated with a particular building or other structure which are not located on public streets. ON-SITE IMPROVEMENTS Buildings, structures or other amenities that are erected on a piece of property and contribute to its value. OPEN SPACE Any land which has not had any significant buildings or structures erected on it. Most often used to describe desirable neighborhood features like parks. OPERATING EXPENSE RATIO (OER) The ratio of total operating expenses to effective gross income (TOE/EGI); the complement of the net income ratio; i.e., OER = 1 - NIR. OPERATING EXPENSES The periodic expenditures necessary to maintain the real property and continue production of the effective gross income, assuming prudent and competent management.

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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 net profit or cash flow. OPERATING STATEMENT A financial statement that reflects the gross revenues, expenses, and net operating profit or loss of an investment over a fixed period. ORAL APPRAISAL REPORT A report that is transmitted orally. See also written appraisal report. ORIGINAL EQUITY The amount of cash a home buyer initially invests in the home. 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). 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. OWNER OCCUPIED The state of property wherein the owner occupies at least some portion of the property.

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P 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. 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. PARTIAL INTEREST Divided or undivided rights in real estate that represent less than the whole (a fractional interest). A shared ownership in a piece of property. May be divided among two or more parties. 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. 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. PERSONAL PROPERTY 1. Owned items which are not permanently affixed to the land. 2. 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. (USPAP)

3. 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 personalty.

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

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PERSONAL RESIDENCE The primary domicile of a person or family. 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. PHYSICAL DETERIORATION The wear and tear that begins when a building or improvement is completed and placed into service. PHYSICAL LIFE The total period a building lasts or is expected to last (i.e., remain standing), as opposed to its economic life. 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. 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. 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. A coordinated, real estate development where common areas are shared and maintained by an owner's association or other entity. PLAT 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.

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

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POINT A percentage of a mortgage amount (one point = 1 percent). POLE LINE EASEMENT An easement for the construction, maintenance, and operation of a pole line, usually for the transmission of electric power. POTENTIAL GROSS INCOME (PGI) The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted. PREFABRICATED Any building or portion thereof which is manufactured and assembled off site, then erected on a property. PRESENT VALUE The value of a future payment or series of future payments discounted to the current date or to time period zero. 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. As differentiated from a conservation easement. PRIMARY DATA Information that is gathered in its original form by the analyst. See also secondary data. PRIME RATE The interest rate that banks and other lending institutions charge other banks or preferred customers. PRINCIPAL The amount owed on a mortgage which does not include interest or other fees. PRINCIPAL, INTEREST, TAXES, AND INSURANCE (PITI) The most common constituents of a monthly mortgage payment. PRIVATE MORTGAGE INSURANCE (PMI) A form of mortgage insurance provided by private, non-government entities. Normally required when the LOAN TO VALUE RATIO is higher than 80%. Insurance provided by a private mortgage lender to protect against loss caused by a borrower's default on a residential or commercial mortgage loan.

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PROBATE 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: 1. Collection of inventories and appraisal of assets of the person who has died. 2. Protection of the estate's assets. 3. Payment of decedent's debts. 4. Distribution of the remaining assets to the proper parties as provided by law. PRO FORMA A projected income and expense statement for proposed development. See also reconstructed operating statement. PROGRESSION 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. PROPERTY Any item which is owned or possessed. 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 tax is generally, but not necessarily, intended to be a direct, proportional ad valorem tax. 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. PROXIMITY DAMAGE An element of severance damage 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). 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.

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Q QUADRAPLEX Any building designed to accommodate four families often shortened to the more common term "fourplex". QUALITATIVE ANALYSIS The process of accounting for differences (such as between comparable properties and the subject) that are not quantified; may be combined with quantitative analysis. 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. QUITCLAIM DEED A legal document which transfers any ownership an individual has in a piece of property. Often used when the amount of ownership is not known or is unclear.

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R RAIL EASEMENT The right for the construction, maintenance, and operation of a rail line on a property. RANCH HOUSE An architectural style typified by a single-story, low-roof construction. Popular in the western U.S. 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. 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. RAW LAND Land on which no improvements have been made; land in its natural state before grading, construction, subdivision, or the installation of utilities. REAL ESTATE An identified parcel or tract of land, including improvements, if any. (USPAP) REAL ESTATE AGENT A licensed professional who facilitates the buying and selling of real estate. REAL ESTATE MARKET Buyers and sellers of particular real estate and the transactions that occur among them. REAL PROPERTY The interests, benefits, and rights inherent in ownership of real estate. (USPAP) 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. REALTOR A real estate agent or broker who is a member of the National Association of Realtors.

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REASONABLE 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. RECONCILIATION 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. 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. RECORDER A local government employee whose role it is to keep records of all real estate transactions within the jurisdiction. RECORDING The filing of a real estate transaction with the appropriate government agent (normally the RECORDER). A real estate transaction is considered final when it is recorded. REDEVELOPMENT 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. REGRESSION 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. 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). REHABILITATION 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.

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RELOCATION SERVICE Any company or agency that assists corporate employees in relocating from one place to another. Services may include hiring and coordinating real estate agents, moving companies, utilizes and the like. REMAINDER 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.

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. REMNANT A remainder that has negligible economic utility or value due to its size, shape, or other detrimental characteristics; also called on economic remainder or uneconomic remnant. See also remainder. REMODEL An activity designed to improve the value or desirability of a property through rebuilding, refurbishing, redecorating or adding on to it. REMODELING A type of renovation that involves modification or updating of existing improvements.

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RENOVATION 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 renewal and may encompass the development of facilities to serve the community. RENT ROLL A report that is prepared regularly, usually each month, and indicates the rent-paying status of each tenant. REPLACEMENT ALLOWANCE An 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 building’s economic life; sometimes referred to as reserves or reserves for replacement. 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. REPORT Any communication, written or oral, of an appraisal or appraisal review that is transmitted to the client or a party authorized by the client upon completion of an assignment. (USPAP) 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, superadequacies, and obsolescence of the subject building. RESERVE An 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. RESIDENTIAL PROPERTY A vacant or improved parcel of land devoted to or available for use as a residence, e.g., single-family homes, apartments, rooming houses. A piece of property used for permanent human habitation whether it be for single family or multifamily use. Many state regulatory agencies use this term to mean a property with 1-4 dwelling units.

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RESIDUAL The quantity left over; in appraising, a term used to describe the result of an appraisal procedure in which known components of value are accounted for, thus solving for the quantity that is left over, such as land residual or building residual. RESIDUAL CAPITALIZATION RATE An 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. RESTRICTED APPRAISAL REPORT One of the two types of written appraisal report options specified in USPAP. 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 workfile. REVERSION A lump sum benefit that an investor receives or expects to receive upon the termination of an investment; also called reversionary benefit. 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. 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. ROYALTY 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. RURAL An area outside of an established urban area or metropolitan district that typically lacks urban and suburban services such as sewers, city water, public transportation, etc.

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S 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. SALE-LEASEBACK 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. SALE PRICE The actual price a property sells for, exclusive of any special financing concessions. SALES COMPARISON APPROACH An appraisal practice which estimates the value of a property by comparing it to comparable properties which have sold recently. 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. 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. SCARCITY An economic principal that dictates the price of a good or service through the interaction of supply and demand. When an item is scarce, its price tends to rise, given a constant demand. Real Estate is a classic example of scarcity. 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).)

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SCOPE OF WORK The type and extent of research and analyses in an appraisal or appraisal review assignment. (USPAP) SEASONAL DWELLING A dwelling not intended for year-round use, e.g., a vacation home such as a beach house or ski lodge, or a cabin or cottage. SECOND MORTGAGE A loan secured by the equity in a home, when a primary mortgage already exists. SECONDARY DATA Information that is not gathered in its original form by the analyst. See also primary data. SECONDARY MORTGAGE MARKET An economic marketplace where mortgage bankers buy and sell existing mortgages. SEMIDETACHED HOUSING Two residences which share a common wall. SERVICER A financial institution which collects mortgage payments from borrowers and applies the appropriate portions to principal, interest and any escrow accounts. SETBACK Zoning regulations that designate the distance a building must be set back from the front, rear, and sides of the property lines. SEVERANCE 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. SHORT-LIVED ITEM A building component with an expected remaining economic life that is shorter than the remaining economic life of the entire structure. SIGNATURE 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. (USPAP)

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SINGLE-FAMILY PROPERTY A property designed and built to support the habitation of one family. SITE Land that is improved so that it is ready to be used for a specific purpose. 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. 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. 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. 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. 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. 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.

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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. 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. STIGMA 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. SUBDIVISION 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. A residential development that is created from a piece of land which has been subdivided into individual lots. 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. SUBJECT PROPERTY The property that is appraised in an assignment. SURVEY A specific map of a piece of property which includes the legal boundaries and any improvements or features of the land. Surveys also depict any rights-of-way, encroachments or easements. SWEAT EQUITY The method whereby a home owner develops equity in a property, either during the purchase or throughout its life, by personally constructing improvements rather than paying to have them built.

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T TAX-EXEMPT PROPERTY Any property which is not taxed. TENANCY The right to occupy a building or unit. TITLE A specific document which serves as proof of ownership. TITLE COMPANY An organization which researches and certifies ownership of real estate before it is bought or sold. Title companies also act as the facilitator to ensure all parties are paid during the real estate transaction. TITLE INSURANCE A policy which insures a property owner should a prior claim arise against the property after the purchase has been completed. This also covers a lender should a question of ownership arise. TITLE SEARCH The process whereby the title company researches a property’s title history and ensures that no outstanding claims exist. TUDOR A style of architecture typified by exposed stone, wood and brick construction. Similar in style to English manor homes.

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U UNDERIMPROVED LAND A piece of land which has been improved, but not to the full extent of its potential. UNENCUMBERED PROPERTY Any property which has no outstanding claims or liens against it. UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE (USPAP) Developed in 1986 by the Ad Hoc Committee on Uniform Standards and copyrighted in 1987 by The Appraisal Foundation, USPAP sets forth the standards followed by every licensed and certified real estate appraiser in the United States. The purpose of these Standards is to establish requirements for professional appraisal practice, which includes appraisal and appraisal review. The intent of these Standards is to promote and maintain a high level of public trust in professional appraisal practice. USEFUL LIFE The span of time over which a property can be used or can provide benefits to its owner.

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V VACANCY RATE The current percentage of vacant properties in a given area, regardless of why they are vacant. VARIANCE An exception to municipal zoning regulations granted for a specific time period to allow for non-conforming use of the land. VETERANS AFFAIRS, DEPARTMENT OF (VA) The successor to the Veteran's Administration, this government agency is responsible for ensuring the rights and welfare of our nation’s veterans and their dependents. Among other duties, the VA guarantees home loans made to veterans.

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W WALK-THROUGH INSPECTION A process whereby an appraiser examines a property in preparation for estimating its value. Also, the process of inspecting a property for any damage prior to that property being bought or sold. WARRANTY An affidavit given to stipulate the condition of a property. The person giving the warranty assumes liability if the condition turns out to be untrue. WEAR AND TEAR A term used to indicate the normal damage inflicted on a property through every-day use. WORKFILE Documentation necessary to support an appraiser’s analyses, opinions, and conclusions. (USPAP)

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Z ZERO LOT LINE A municipal zoning category wherein a building or other fixture may abut the property line. ZONE A specific area within a municipality or other jurisdiction which conforms to certain guidelines regarding the use of property in the zone. Typical zones include single-family, multi-family, industrial, commercial and mixed-use.