The Quick Real Estate Valuation Glossary
A lot of lingo is thrown around in the real estate and financial markets that can sometimes be confusing. And our team of experts is here to help share their knowledge.
We’ve compiled a glossary of real estate valuation terms that are important for lenders, fiduciaries, attorneys, and property owners who are trying to understand real estate valuations.
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The process of calculating property value, conducted by a certified appraiser. An appraisal is most frequently needed when buying, refinancing, or selling property. Generally, an appraisal takes 1-3 weeks to complete under normal conditions. At Akrivis, our appraisals take 5 business days or less.
Appraiser
An appraiser is a professional trained to analyze a property and calculate property value through the appraisal process. To become licensed, appraisers undergo extensive training, including a higher education, a practicum course, and hundreds to thousands of hours of ongoing experience and professional development.
Appreciation
Appreciation is an increase in the value of a property over time due to various factors such as market demand, improvements, or inflation.
Assessed Value
The assessed value is how much the property is worth, as determined by a governmental tax assessor for the purpose of calculating property taxes.
Assessment
An assessment is the process of determining the value of a property for taxation purposes by a government authority. The tax assessor looks at multiple factors that can impact property value, including the size of the property, building age, amenities, current condition, and the location.
Assessor
A government official responsible for determining the value of properties within a jurisdiction for the purpose of assessing property taxes.
Automated Value Models
Automated value models are algorithms that estimate residential and commercial property values based on data inputs such as comparable sales, property characteristics, and market trends. Popular sites like Zillow use AVMs to provide quick property value estimates. These values can often be skewed by outdated or incomplete data.
Capitalization rate is the rate of return used to estimate the value of income-producing properties. It’s calculated by dividing the net operating income by the property’s current market value. This is also referred to as “cap rate.”
Comparable Sales
Comparable sales are recently sold properties similar to the subject residential, commercial, or agricultural property, used to determine its market value through the sales comparison approach. Also called “comps” or “comparables.”
Cost Approach
The cost approach is a method of real estate valuation that estimates the property value by calculating the cost of replacing it with a similar one. Land value, materials, labor, and appreciation/depreciation are key considerations. This method is often used for properties that are in development or that recently underwent major changes.
Depreciation is a decrease in the value of a property over time due to factors such as wear and tear, obsolescence, or economic conditions. Deferred maintenance, where the property owner has not maintained the property, can cause depreciation in both aesthetic and monetary value.
Drive-By Appraisal
A drive-by appraisal is where the appraiser conducts a visual inspection of the property from the exterior but does not enter the interior. Also referred to as “exterior appraisals.”
Due Diligence
Due diligence is the process of researching a property to uncover any potential issues or risks before making a purchase or investment.
An encumbrance is any claim or liability attached to a property, such as a mortgage, lien, or easement, that may affect its value or transferability.
Executor
An executor is a person or institution appointed to carry out the terms of a will and manage the estate of a deceased person.
Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of important facts and property details.
Fannie Mae
The Federal National Mortgage Association, commonly known as Fannie Mae, is a United States government-sponsored enterprise that purchases mortgages from lenders, packages them as mortgage-backed securities, and sells them to investors.
Freddie Mac
The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, is a United States government-sponsored enterprise and a counterpart to Fannie Mae. They help to “ensure a reliable and affordable supply of mortgage funds” by buying mortgages from lenders, increasing the availability of mortgage credit.
The income approach is a method of real estate appraisal that estimates the value of a commercial or rental property based on its income-producing potential.
Inspection
An inspection is the process of visually examining a property to assess its condition, features, and potential issues.
Investment Property
An investment property is real estate purchased with the intention of generating income, either through rental income or capital appreciation.
Market value is the estimated amount a property is worth on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction in which the parties had each acted knowledgeably, prudently, and without compulsion.
The total income generated by a property minus operating expenses, not including mortgage payments or capital expenditures.
Fannie Mae’s property data collection (PDC) is a systematic process to collect detailed information about a property, often used by appraisers, lenders, and real estate professionals during the valuation process.
Property Data Reports
Freddie Mac Property Data Reports is a systematic process to collect detailed information about a property, often used by appraisers, lenders, and real estate professionals during the valuation process.
A reconsideration of value (ROV) is a formal request to review their valuation report and consider additional objective information or evidence that may affect the property’s value.
Retrospective Appraisal
A retrospective appraisal is conducted to determine the value of a property as of a past date or specific point in time. These appraisals are often used in legal proceedings or for tax purposes.
A sales comparison approach is a common method of real estate appraisal that estimates the value of a property by comparing it to similar properties that have recently sold.
A valuation estimates the monetary value of a commercial, residential, or agricultural property, typically conducted for purposes such as buying, selling, financing, or taxation. The valuation is based on market analysis, interior and exterior inspections, legal and financial analysis, and more.
Local governments set regulations that control land use within specific areas, such as residential, commercial, or industrial.
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Got questions about any of these terms or looking to understand the market value of your property? Contact us for quick and easy real estate valuations in five business days or less.