Appraiser Terminology

Have you heard an appraiser use any of these terms? Did you just hear one of our appraisers use it and you came here to figure out what it meant? We don't mean to speak a foreign language, but any profession has its jargon. What res ipsa loquitur is to a lawyer and triple witching is to day traders, external obsolescence is to appraisers. Here are some examples of common appraiser jargon and their meanings:

 

Adjustment.  When comparable properties have been identified, the appraiser makes adjustments to the Sales Price of each of the comparables to bring them into equivalency with the subject property, accounting for differences in location, construction quality, living area, acreage, frontage, amenities and the like.  If a comparable sale has a superior feature, a negative adjustment is made, likewise, if the comparable is inferior, a positive adjustment is made based upon how the market is likely to react to that factor. This is where the professional expertise of an appraiser is most valuable.

Sales Price:  What a property actually sold for. May be different than Market Value.

Definition of Market Value*:
Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:  1. Buyer and seller are typically motivated; 2. Both parties are well informed or well advised and acting in what they consider their own best interests; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.  * This definition is from regulations published by federal regulatory agencies pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 between July 5, 1990, and August 24, 1990, by the Federal Reserve System (FRS), National Credit Union Administration (NCUA), Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the Office of Comptroller of the Currency (OCC). This definition is also referenced in regulations jointly published by the OCC, OTS, FRS, and FDIC on June 7, 1994, and in the Interagency Appraisal and Evaluation Guidelines, dated October 27, 1994.

Definition of Appraisal:
An appraisal is an opinion of value as of a specific point in time, not a fact to be found. It is based upon the experience and ability of an appraiser to analyze the market and sales data that is available to them and arrive at their estimate of the most probable price which a property should bring under all conditions as defined under Market Value (see above). Because, in addition to analyzing market data, the appraiser is estimating the most probable actions of buyers and sellers in the marketplace, personal judgement plays an important part in the process, particularly when estimating how potential buyers will react to needed repair or updating. As a result, it is entirely possible that different appraisers, given identical data, may interpret that data differently and may arrive at totally different opinions of value, that is why the skill and ability of the individual appraiser is so important. 

 

Chattel.  Personal property that may be on the subject property but which does not figure into the opinion of value in the appraisal report. 

 

Comparable or "comp”.  Properties like the subject property nearby which have sold recently, used as a basis to determine the fair market value of the subject property. 

 

Drive-by.  An appraisal that is limited to an exterior-only examination of the Subject to make a determination that the property is actually there and has no obvious defects or damage readily visible from the public right of way.  Fannie Mae's form for this type of appraisal is its 2055, so you may hear a drive-by referred to as a "2055."

Exterior Only. No interior inspection was made, only the outside was viewed, unless otherwise noted, this inspection will generally be made from the public right of way.

 

Fair market value.  The appraiser's opinion of value, as of a specific date, as written in his or her appraisal report should reflect the fair market value of the property – what a willing buyer would pay a willing seller in an arm's-length transaction.

 

GLA.  "Gross Living Area," the sum of all above grade floor space, including stairways and closet space.  GLA is often determined using exterior wall measurements.

 

Latent defects.  A defect on the property that is not readily apparent but which impact the fair market value.  Structural damage or termite infestation might be examples.

 

MLS.  A Multiple Listing Service is a proprietary listing of all properties on the market in a given area and their listing prices, as well as a record of all recent closed sales and their sales prices.  Created by and used primary by real estate agents, many appraisers pay for access to these databases to aid in comparable selection and adjustment research.

 

Obsolescence.  The value of assets diminishes as their capabilities degrade or more desirable alternatives are developed.  Functional obsolescence is the presence or absence of a feature which renders the property undesirable.  Obsolescence can also occur because the surrounding area changes, making a feature of the property less desirable.

 

Subject.  Short for the property being appraised – the "subject property."

 

Useful life.  The time during which a property can provide benefits to its owner.

 

URAR.  Short for Uniform Residential Appraisal Report, Fannie Mae form 1004, it is the form most lenders require if they need a full appraisal (that is, with an interior inspection).

 

USPAP.  Short for Uniform Standards of Professional Appraisal Practice, USPAP promotes standards and professionalism in appraisal practice, and is required for federally related lending, but not for non-federally related transactions.  It is promulgated by the Appraisal Foundation, a non-governmental entity chartered by Congress to, among other things, maintain appraisal standards.

 

Walk-through.  An inspection that includes a visit to each part of the interior of the property being appraised.