Term
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Definition
| calculation of future values, given assumptions about the amount of amounts invested and the interest rate that is paid on the invested amounts |
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Term
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Definition
| the process for equating the value of future benefits from a real estate investment to an equivalent current (present) value |
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Definition
| the value of money in some period before the time zero |
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Definition
| property classification that includes hotels, motels, and many types of restaurants |
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Term
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Definition
| property classification that includes warehouses and structures that house light manufacturing |
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Term
| Internal rate of return (IRR) |
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Definition
the rate of interest (discount) that equates the present value of the cash inflows to the present value of the cash outflow
that is, the rate of discount that makes the net present value equal to zero |
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Term
| Investment-grade properties |
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Definition
| synonymous with institutional-grade real estate, large, relatively new and fully leased commercial properties located in major metropolitan areas, generally well over $10 million, targeted by institutional investors, such as pension funds and foreign investors |
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Term
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Definition
the growth in the invested dollars of an investment
usually stated as a percentage of growth or return |
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Term
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Definition
| a one-time receipt of expenditure occurring in a given period |
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Definition
| residential property classification that includes apartments |
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Term
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Definition
| the difference between the present value of the cash inflows and the present value of the cash outflows |
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Term
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Definition
the return the investor is forgoing on an alternative investment of equal risk in order to invest in the asset under consideration
said differently, it is the return the investor could earn on his next best alternative of similar risk |
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Term
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Definition
| a fixed amount of money received every period for some length of time |
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Term
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Definition
| the value of future cash flows at time zero |
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Term
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Definition
| the possibility that actual outcomes will vary from what was expected when the asset was purchased |
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Term
| Time value of money (TVM) |
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Definition
| standard techniques for quantifying the effects of time and risk on value |
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Term
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Definition
| in cost appraisal, the identification and measurement of reductions in the current market value of a property from today's reproduction cost |
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Term
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Definition
| additions or subtractions from a comparable sale price or cost which are required to make the comparable property more directly comparable to the subject property |
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Term
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Definition
| an unbiased written estimate of the fair market value of a property |
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Term
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Definition
| the document the appraiser submits to the client and contains the appraiser's final estimate of market value, the data upon which the estimate is based, and the calculations used to arrive at the estimate |
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Term
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Definition
a transaction between two parties that have no relationship with each other and who are negotiating on behalf of their own interests
a fairly negotiated transaction and reasonably representative of market value |
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Term
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Definition
| properties similar to the subject property used in the sales comparison approach to calculate a single indicate value for the subject property |
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Term
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Definition
| the relevant characteristics used to compare and adjust the sale prices of the comparable properties in the sales comparison approach |
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Term
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Definition
losses of property value caused by forces or conditions beyond the borders of the property
the losses are deducted from a building's reproduction cost in the cost approach to estimating market value |
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Term
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Definition
| losses in value of a building relative to its reproduction cost because the building relative to its reproduction cost because the building is not consistent with modern standards or with current tastes of the market |
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Term
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Definition
| the use of a property found to be (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive |
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Term
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Definition
| the final value estimate for the subject property resulting from application of one of the major approaches in the appraisal process |
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Term
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Definition
| the value of the property to a particular investor, based on his or her specific requirements, discount rate, expectations, and so on |
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Term
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Definition
| the relationship between supply and demand for a particular type of real estate in a local market at a specified point in time |
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Term
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Definition
| the price a property should sell for in a competitive market when there has been a normal offering time, no coercion, arm's length bargaining, typical financing, and informed buyers and sellers |
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Term
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Definition
| items of personal property |
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Term
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Definition
| loss of value of a building from its reproduction cost, resulting from wear and tear over time |
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Term
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Definition
| five sale price adjustments made to comparable property transactions prices; location; physical characteristics, legal characteristics, legal characteristics, use, and nonrealty items |
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Term
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Definition
the process of forming a single point estimate from two or more numbers
it is used widely in the appraisal process
for example, in the sales comparison approach to develop a single indicated value from several final adjusted sale prices of comparables, and in final reconciliation to develop a final estimate of value from two or more indicated values |
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Term
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Definition
estimation of the rate of property appreciation through statistical examination of properties that have sold twice during the sample period
normally, the analysis is by statistical regression |
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Term
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Definition
| the cost to build a new building of equal utility to an existing building that is not an exact physical replica of the existing building |
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Term
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Definition
| the cost to build a new building that is exactly like an existing building in every physical detail |
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Term
| Restricted appraisal report |
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Definition
provides a minimal discussion of the appraisal with large numbers of references to internal file documentation
if the client just wants to know what the property is worth and does not intend to provide the appraisal to anyone for use or reference, a restricted report may be sufficient |
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Term
| Self-contained appraisal report |
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Definition
includes all the detail and information that were relevant to deriving market value or the other conclusions within the report
most self-contained appraisal reports use the "narrative" reporting option
the narrative appraisal report is the longest and most formal format for reporting and explaining appraisal conclusions and contains a step-by-step description of the facts and methods used to determine value
self-contained narrative reports are typical in appraisals of major income-producing properties |
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Term
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Definition
| the property for which an appraisal of fair market value is produced |
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Term
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Definition
this report summarizes the conclusions of the appraisal
the majority of the data and techniques used in the appraisal are kept in the appraiser's work file
most summary appraisal reports use the "form" reporting option
forms reports are much shorter than narrative reports, and their frequent standardization creates efficiency and convenience
form reports are generally required by mortgage lenders when households are purchasing or refinancing a single-family home |
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Term
| Transactional adjustments |
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Definition
| in an appraisal, adjustments to comparable property transaction prices that concern the nature and terms of the deal |
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Term
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Definition
| the prices observed on sold properties |
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Term
| Uniform Standards of Professional Appraisal Practice (USPAP) |
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Definition
rules governing the appraisal process and reporting of appraisals that are developed by the Appraisal Standards Board of the Appraisal Foundation
appraisers are obligated by law to follow there rules and guidelines |
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Term
| Capital expenditures (CAPX) |
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Definition
| expenditures for replacements and alterations to a building (or improvement) that materially prolong its life and increase its value |
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Term
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Definition
| the rent specified in the lease contract |
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Term
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Definition
| the process of estimating the value of a property by dividing a property's annual net operating income by an overall capitalization rate |
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Term
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Definition
| method of estimating the appropriate capitalization rate from comparable property sales |
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Term
| Effective gross income (EGI) |
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Definition
| the total annual income the rental property produces after subtracting vacancy losses and adding miscellaneous income |
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Term
| Effective gross income multiplier (EGIM) |
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Definition
| the ratio of the sale prices to the annual effective gross income of the income-producing property |
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Term
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Definition
| an estate in land that provides the owner with a complete set of legal rights, limited only by the powers of government |
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Term
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Definition
| the overall capitalization rate; the ratio of the first-year net operating income to the overall value (or purchase price) of the property |
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Term
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Definition
| the ratio of the estimated net operating income in the year following sale to the overall value of the property at the time of sale |
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Term
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Definition
| the process of converting periodic income into a value estimate |
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Term
| Internal rate of return (IRR) |
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Definition
| the rate of interest (discount) that equates the present value of the cash inflows to the present value of the cash outflows; that is, the rate of discount that makes the net present value equal to zero |
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Term
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Definition
| the bundle of rights possessed by the landlord in a leased property, made up primarily of the right to receive rental payments during the lease term and ultimately to repossess the property at the end of the lease term |
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Term
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Definition
| the rent that could be obtained by renting a property on the open market |
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Term
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Definition
| the proportion of potential gross income not collected when the use (rental) market is in equilibrium |
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Term
| Net operating income (NOI) |
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Definition
the type of income to a property used in direct capitalization, calculated by deducting from potential gross income vacancy and collection losses and adding other income to obtain effective gross income
from this amount all operating expenses are subtracted, including management expense and a reserve for replacements and other nonrecurring expenses |
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Term
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Definition
| the expected selling price less selling expenses |
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Term
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Definition
| the expenses owners incur in operating their property |
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Term
| Overall capitalization rate (R0) |
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Definition
| the type of capitalization rate used in direct capitalization, calculated by dividing comparable properties' net operating incomes by their selling prices |
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Term
| Potential gross income (PGI) |
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Definition
| the total annual income the property would produce if it were fully rented and had no collection losses |
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Term
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Definition
| a cash flow forecast prepared to facilitate discounted cash flow analysis |
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Term
| Reconstructed operating statement |
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Definition
a statement of property income and expenses formatted for the purposes of appraisal and investment analysis
differs from typical management operating system in the treatment of certain expenses, including management fees, mortgage payments, and vacancy and collection losses |
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Term
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Definition
| the cash proceeds from sale |
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Term
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Definition
| costs associated with the disposition of a property |
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Term
| Terminal capitalization rate (Rt) |
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Definition
| rate used to convert annual net cash at the end of an expected holding period into an estimate of future sale price |
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Term
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Definition
| the sale price at the end of the expected holding period |
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