Appraisal terms are a bit confusing to those who don’t work in real estate. This list defines some key terms to help you demystify the appraisal process and better communicate with your appraiser. Adjustment: Adjustments to the Sales Price of each comparable property to bring them into equivalency with the subject property, accounting for differences in acreage, amenities, location, living area, quality of construction, etc. The professional expertise of an appraiser is very important to determine adjustments.
Appraisal Foundation: Not-for-profit organization created by the appraisal profession in the US, responsible for establishing, improving, and promoting the Uniform Standards of Professional Appraisal Practice (USPAP).
Appraisal Report: End result of the appraisal process that conveys the estimated value of the subject property and supports the estimate with validating information. Consists of one major standardize form as well as supporting documentation.
Arms Length Transaction: Transaction in which the buyer and seller are completely unconnected. Most often reflects the true market value of a property.
Chattel: Property that is not permanently affixed to the subject property, so does not figure into the opinion of value in the appraisal report.
Comparable or “comp”: Properties similar in size, condition, location, and amenities to the subject property that are used to help determine the fair market value of the subject property.
Contingency: Something that must occur before something else can happen. In real estate, this term is often employed when a buyer must sell a home before purchasing a new one or when a buyer makes an offer that requires complete home inspection before it becomes official.
Contributory value: Value of an improvement that contributes to the value of the property. How much the improvement adds to the property value.
Drive-by: When only the exterior of the subject property is examined during an appraisal to ensure that the property exists and has no visible damage on the outside.
Fair market value: The price that two unrelated parties (a buyer and a seller) are willing to accept in a real estate transaction.
Final Value Estimate: Estimated value of a piece of property resulting from an appraisal that followed USPAP guidelines.
Gross Living Area (GLA): Sum total of floor space, usually determined by external wall lengths. Includes areas such as stairways and closets.
Latent Defects: Defects on the subject properties that are not readily apparent but still impact the value. Examples: structural damage, termite infestation.
Multiple List Service (MLS): Listing of all properties and their listing prices on the market in a given area. Also includes a record of all recently closed sales and their listing prices. Primarily used and created by real estate agents, appraisers often pay for access to these databases to aid in comparable selection and adjustment research.
Obsolescence: When an asset’s value diminishes due to degradation of its capabilities or the development of more desirable alternatives.
Subject: The subject property that is being appraised.
Useful life: The time that the subject property can be used or provide benefits to its owner.
Uniform Standards of Professional Appraisal Practice (USPAP): Establishes a set of guidelines followed by all licensed and certified real estate appraisers. The Standards set forth requirements for professional appraisal practice and aim to promote and maintain a high level of public trust in the professional appraisal practice. The USPAP is accessed through the Appraisal Foundation and is often enacted into law in a state.
Walk-through: An inspection where the appraiser visits each part of the interior of the house in preparation for estimating the value of the property. Also includes inspecting a property for damage before the property is bought or sold.