Appraisal Glossary
Common real estate appraisal terms and definitions
Understanding Appraisal Terminology
Real estate appraisals come with their own specialized vocabulary. This comprehensive glossary defines common terms you may encounter in appraisal reports, during the appraisal process, or when discussing property valuation.
Whether you're a homeowner, buyer, investor, or real estate professional, understanding these terms will help you better comprehend appraisal reports and make informed decisions about property transactions.
A
Accrued Depreciation
The total loss in value from all causes (physical deterioration, functional obsolescence, and external obsolescence) as of the date of appraisal.
Adjustments
Additions or subtractions made to comparable sales prices to account for differences between the subject property and the comparable properties. Common adjustments include size, condition, location, and features.
Amenities
Features that add comfort, convenience, or pleasure to a property, such as swimming pools, fireplaces, upgraded kitchens, or proximity to desirable locations.
Appraisal Management Company (AMC)
An independent entity that administers networks of independent appraisers to fulfill appraisal assignments for lenders. Serves as an intermediary between lenders and appraisers.
Appraisal Report
The formal document prepared by the appraiser that presents the property analysis, methodology, comparable sales data, and final opinion of value. May be a full narrative, summary, or form report (such as URAR).
Arms-Length Transaction
A transaction between unrelated parties, each acting in their own self-interest. These sales are considered most reliable for determining market value, as they exclude sales between family members or under duress.
As-Is Value
The estimated market value of a property in its current condition, without consideration of repairs or improvements. Often used for estate settlements, foreclosures, or divorce proceedings.
Assessed Value
The value placed on property by a public tax assessor for property tax purposes. This differs from market value and is typically lower than what the property would sell for on the open market.
C
Cash-Out Refinance
A refinancing transaction where the new mortgage amount exceeds the existing mortgage balance, with the difference paid to the borrower in cash. Requires an appraisal to determine available equity.
Certificate of Occupancy
A document issued by local government certifying that a building complies with building codes and is suitable for occupancy. Important for new construction appraisals.
Comparables (Comps)
Recently sold properties that are similar to the subject property in terms of location, size, age, condition, and features. Used in the sales comparison approach to determine market value.
Conformity
The principle that properties achieve maximum value when they are relatively similar and compatible with other properties in the area. Homes should generally conform to neighborhood standards.
Contingent Sale
A sale that depends on certain conditions being met, such as the buyer selling their existing home. These sales may not be reliable comparables since the price may be influenced by the contingency.
Cost Approach
One of three main appraisal methods that estimates value by calculating what it would cost to rebuild the structure today, minus depreciation, plus land value. Most useful for new construction or unique properties.
E
Effective Age
An estimate of the age of a structure based on its condition and utility, which may differ from its actual chronological age. A well-maintained 50-year-old home might have an effective age of 30 years.
Effective Date
The date on which the appraiser's opinion of value applies. This is typically the date of the property inspection, but may differ for retrospective or prospective appraisals.
External Obsolescence
Loss in value caused by factors outside the property itself, such as nearby commercial development, increased traffic, or economic decline in the area. Typically incurable by the property owner.
F
Fair Market Value
The price at which a property would change hands between a willing buyer and willing seller, neither being under compulsion to buy or sell, and both having reasonable knowledge of relevant facts.
Fannie Mae
Federal National Mortgage Association (FNMA), a government-sponsored enterprise that purchases mortgages from lenders. Sets many appraisal standards and requires specific appraisal forms for loans they purchase.
FHA Appraisal
An appraisal performed according to Federal Housing Administration requirements, which includes additional property condition and safety standards beyond conventional appraisals.
Functional Obsolescence
A loss in value due to outdated design, layout, or features that reduce a property's desirability or usefulness. Examples include a one-bathroom house with four bedrooms or a kitchen with inadequate counter space.
G
Gross Living Area (GLA)
The total finished and habitable above-grade area of a residential property, measured from exterior walls. Does not include basements, garages, porches, or unfinished areas.
H
Highest and Best Use
The most profitable, legally permitted, physically possible, and financially feasible use of a property. The use that results in the highest value for the property.
I
Income Approach
An appraisal method primarily used for investment properties that estimates value based on the income the property generates. Uses capitalization rates and rental income to determine value.
Inspection
The physical examination of the property by the appraiser, including both interior and exterior observation. The appraiser notes condition, features, measurements, and any factors affecting value.
L
Lender's Appraisal
An appraisal ordered by and paid for through the lender, used to determine the property's value for loan purposes. The borrower receives a copy but the appraisal belongs to the lender.
Listing Price
The price at which a property is offered for sale. Not a reliable indicator of market value, as it represents the seller's asking price rather than what a buyer will actually pay.
Loan-to-Value Ratio (LTV)
The relationship between the loan amount and the appraised value (or purchase price, whichever is lower), expressed as a percentage. A key factor in loan approval and determining if PMI is required.
M
Market Value
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller each acting prudently and knowledgeably.
P
Paired Sales Analysis
A technique used to determine the value of specific features by comparing two similar properties that differ in only one characteristic. Helps quantify adjustments for specific amenities or features.
Physical Depreciation
Loss in value due to wear and tear, deterioration, or damage from the elements over time. Can be curable (economically feasible to fix) or incurable (too expensive to repair relative to value added).
Private Mortgage Insurance (PMI)
Insurance that protects lenders when borrowers put down less than 20% on a conventional loan. An appraisal showing sufficient equity (typically 20% or more) can help eliminate PMI requirements.
R
Reconciliation
The final step in the appraisal process where the appraiser considers all approaches to value (if multiple were used) and determines the final opinion of value. Not an averaging, but a reasoned conclusion.
S
Sales Comparison Approach
The most common appraisal method for residential properties that estimates value by comparing the subject property to similar properties that have recently sold, making adjustments for differences.
Site Value
The value of the land alone, as if vacant and available for development to its highest and best use. Used in the cost approach and for tax assessment purposes.
Square Footage
The measurement of floor area within a property. For residential appraisals, typically refers to Gross Living Area (GLA), which includes only finished, above-grade, heated living space.
Subject Property
The property being appraised. All analysis, comparisons, and adjustments in the appraisal report relate back to this specific property.
U
URAR
Uniform Residential Appraisal Report, also known as Fannie Mae Form 1004. The standard form used for most single-family home appraisals in mortgage lending transactions.
USPAP
Uniform Standards of Professional Appraisal Practice. The ethical and professional standards that all licensed appraisers must follow. Developed and maintained by The Appraisal Foundation.
Z
Zoning
Local government regulations that dictate how property can be used (residential, commercial, industrial, etc.) and development standards such as setbacks, height limits, and density requirements.
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If you come across a term in your appraisal report that you don't understand, or if you'd like clarification on any aspect of the appraisal process, don't hesitate to reach out to us. We're here to help you understand your property valuation.
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