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Appraisal Terms

Agents of Production: Agents of Production is the economic principle that contends that all production is a result of four agents being in balance: Labor, Land or Materials, Capital and Coordination. The loss of balance with any of these makes production inefficient.

Annuity: An annuity is a stream of income that is in the form of regular payments and comes at regular intervals.

Anticipation: The principle of Anticipation states that value is created by anticipation use/enjoyment of future benefits.

Apposite Value: The value, which is fully pertinent and completely relevant to an appraisal assignment.

Appraisal Approach: A general way of determining value using one or more specific appraisal methods.

Appraiser Declarations: A list of the items to which the Appraiser must certify and declare, cf. USPAP.

Appraisal Method: A specific way to determine value within the appraisal approach.

Appraisal Procedure: The act, manner and technique of performing the steps of an appraisal method.

Appraisal Process: The appraiser is a witness to the Value of an item on a recorded date, at a given location. The myriad appraisal functions necessitate the correlative value. Furthermore, any one item may possess several types of value simultaneously. The determination of the appraisal objective leads the appraiser to the appropriate type of value to be estimated, which is compatible With the intended use of the appraisal.

Appraisal Purpose: The reason why a client is having an item(s) appraised.

Appraisal Objectives: Some of the more common objectives are as follows: Purchase. sale, loan, insurance, donation, divorce, business dissolution, probate. taxation, bankruptcy. and litigation support.

Appraisal Technique: A synonym for appraisal procedure; a technical method of developing an opinion as to value.

Appraisals: Appraisals are estimates of value.

Appraisal Use: The use(s) to which a client will put an appraisal.

Arbitration: Arbitration is proceeding in which a dispute is submitted for a binding determination as decided by the arbitrator(s).

Binding Arbitration: Binding Arbitration is when, in following a statute or contract stipulation, government arbitrators decide on an award. Voluntary Binding Arbitration is the term used when both parties select the arbitrators and do so without compulsion.

Blockage: Blockage is depreciation resulting from a number of similar properties being offered for sale in the marketplace that is too large for the normal market to absorb within a specific period of time.

Change: Change is the market principle, which recognizes the shifting importance of other principles. It recognizes the interplay progression and regression, contribution, competition, and explains the cycles of market development, stabilization, decline and renewal.

Characteristics of Value: Characteristics of Value Characteristics are questions of fact and have an objective relationship to the market place.

Collectible (also Collectable): one of a class of objects, which is prized by its fanciers, and for which, because of a market consensus, a premium is paid by those who value its possession above others of its class – resulting in that part of its value is derived from its collectability.

Comparable Items and Condition Issue: Comparable items, which are of the same type as the subject item, are capable of being compared. Sometimes the item is the equivalent type, and sometimes not. Different items can be comparable if their elements of assessable attributes are of like kind. Considerations of dissimilarities and their probable effects on value can be factored by item comparison, dollar, and percentage adjustments.

Comparable Sale: Sale of an item(s) of the same general kind as the subject item(s), capable of being compared with it.

Competence: having the required/adequate ability or necessary qualities to perform the required assignment.

Competency Statement: The appraiser should be able to certify that he/she is competent to render an opinion of a defined value of subject item by virtue of education and experience, and is ready to testify under Rule 702 of the Federal Rules of Evidence with respect to scientific, technical, and other specialized matters relative to opinions of value.

Competition: Principle of Competition states that competition arises from profits and that the reverse is true, i.e., profits create competition.

Concentration Ratio: When a few buyers are responsible for a high proportion of sales, a market is said to have a high Buyer Concentration Ratio.

Conformity: Conformity is a principle that basically has to do with trends, cycles and general market attitudes.

Condition: Condition is the physical description of the property as to its completeness for performing an identified role. Impairments could be any form of damage or loss of components, wear and tear, or inappropriate or unacceptable repairs.

Connoisseur: A judge of the best in any group. An individual who is competent to establish and comment on matters of taste.

Constant Dollars: Constant Dollars are dollars, which have been adjusted for the change in their purchasing power over time.

Consumer Price Index: Consumer Price Index is the total cost of purchasing a large and varied “market basket” of consumer goods, compared to the total cost in other years and expressed as a ratio.

Contribution: The Principle of Contribution contends that certain attributes contribute to the value of the whole, and the lack of a particular attributes detracts from the valuation of the whole.

Control: to directly manage, to dominate the decision making process and to set the policies regarding an undertaking.

Cost: is the expenditure it takes to create a new item.

Cost Approach: Estimates either reproduction or replacement cost on an item, either new or depreciated.

Date Of The Report: the date of the transmittal letter or if a report lacks a transmittal letter, the date a written report is prepared by an appraiser. In the case of an oral report, it is the date the report is communicated to the client. The date of a report may or may not coincide with the effective date of the appraisal.

Declaration of Value: A declaration as to the Appraiser’s value conclusion. This takes formal construction. “It is my professional opinion that the Estimated Fair Market Value of the  (item,etc.) is ($ 3,000.00, etc.) .

Diminished Value: (Estimate of Loss) Loss in market value between two points in time due to changes in conditions.

Due Diligence: Adherence to the accepted standards of a profession.

Economic Obsolescence: Results from external damage to a property’s ability to meet a function.

Effective Date: The date, which the opinions, advice, or analysis contained in an appraisal, review, or consulting service applies in a given situation.

Elements of Quality: Characteristics of an item(s) important and recognized by a connoisseur. Characteristics of quality are primarily questions of aesthetic appeal and connoisseurship … they are usually independent of economics and fashion.

Ethical Declaration: Statement that appraisal conforms to USPAP.

Expert Pool: People particularly knowledgeable about a particular subject.

Executive Summary: Provides the reader with a synopsis of the appraisal assignment.

Fair Market Value: The price at which an item(s) would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.

Fractional Value: Partial Value based upon the market value of the whole in comparable condition. Partially restored items or incomplete and uncompleted restorations.

Functional Obsolescence: Is the difference between an item(s) ability to produce the intended result and the ability of a replacement property to produce the same result, with the original and replacement being of comparable design and kind.

Highest and Best Use: is the likely, probable, possible, and legal use of an item that results in its highest value.

Hypothetical Value: (Based on Assumptions) Value is based on reported and/or assumed conditions sometimes contrary to fact; stolen or fire damaged items which are not always able to be inspected.

Income Approach: Estimates the value of anticipated future benefits derived from owning income producing items, properties or objects.

Limiting Condition: A circumstance, fact or condition that in some manner confines the appraisal or the appraisal process.

Market: A market is a group of men and women engaged/affiliated in, or organized and established for, the buying and selling of goods.

Market Comparison Approach: Estimates the value of an item by comparing sales of other items sold in the same market, with adjustments for the differences that effect value, such as differences in characteristics of value, in market segment, in sales methods and procedures so as to conclude from all relevant date the best estimate of value.

Market Level: The place within a market where a certain item(s) is most often sold. (A used couch may most often be sold to the public at an estate sale, auction or used furniture store.

Market Value: Market value is the major concern in most real property appraisal assignments. The current definition as agreed to by the agencies that regulate federal financial institutions is: The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and sellers each acting prudently and knowledgeable, 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 the title from the seller to buyer under conditions whereby:

  • buyer and seller are typically motivated;
  • both parties are well informed or well advised, and acting in what they consider to beat their own best interests;
  • a reasonable time is allowed for exposure to the open market;
  • payment is made in terms of cash or its equivalent; and
  • the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by any person associated with the sale.

The substitution of other currency for United States dollars is appropriate in other countries or in reports addressed to clients from other countries.

Persons performing appraisal services that may be subject to litigation are cautioned to see a legal help in the jurisdiction in which the services are to be performed. One of the most important legal issues is the exact definition of “market value.”

Market Model: An analysis of a particular sample which describes a pattern within a whole population. Market models consider: 1 ) changes over time; 2) how representative the sample are; 3) relevant characteristics of value and collector category; 4) market level.

Measures of Central Tendency: Mathematical methods of assessing how well a particular sample represents the whole population from which the sample was drawn.

Median: The middle value when observations are ranked.

Mean: The average of statistical sample.

Mediation: Mediation is a process in which parties to a dispute voluntarily select an impartial third party to help resole the issues.

Most Appropriate Market: The place where the item(s) is most often sold. This does not mean the primary market place necessarily, e.g. beans in a field are not taken directly to the store for sale to the public but first are sold to a processing plant.

“Number Correct” Issue: Refers to the exact original components of the item as when originally delivered from the factory. This issue is important but values of all items do not respond to this issue equally. Normally, appraisers are valuers, not authenticators. Finally, the forging of numbers is a known occurrence as is expert alteration.

Obsolescence: Functional Obsolescence: Is the difference between an item(s) ability to produce the intended result and the ability of a replacement property to produce the same result, with the original and replacement being of comparable design and kind.

Economic Obsolescence: Results from external damage to a property’s ability to meet a function.

Technological Obsolescence: Results from the lack of ability to create a substitute for a property’s intended use given modern methods or materials.

Original cost: Original cost is the cost paid by the current owner.

Owner/Agent Disclaimer: “The appraiser assumes no responsibility for matters of a legal nature affecting the subject item or title thereto, nor does the appraiser render any opinion as to the title, which is assumed to be good and marketable. The item is appraised as though under responsible ownership. The client/agent may be anyone who initiates the appraisal with or without permission of the owner, e.g., courts, lawyer, insurance company, purchaser, lender, lienholder, etc.”

Personal Property: Personal property is tangible, movable and utilitarian, it might be collectible or decorative, or in some combined use.

Present Worth: Present worth is a particular value within a particular time. It is a discount applied to a sum of value where a units of similar properties would impact a market at one time.

Price: is the amount a seller has agreed to take for an item.

Progression and Regression: The Principle of Progression and Regression states that the value of an item(s) placed along side units of either higher or lesser valued properties will increase or decrease respectively, by this association.

Property: is defined as anything that can be possessed and is an aggregate of rights that can be owned.

Provenance: The verified, proven history of an item that links that item with someone or an event, in a manner that makes the market for that item react favorably; increasing the value of the item over and above an identical item, which does not share the same linkage.

Appraisal Purpose: The reason why a client is having an item(s) appraised.

Appraisal Use: The use(s) to which a client will put an appraisal.

Qualitative Ranking: Qualitative Ranking or Qualification as a principle states that appraisers giving opinions on quality, or other merits of a property, do so by comparing the quality and attributes of the subject property with those of similar properties.

Real Property: is real estate and the improvements found upon it.

Record of Income Performance: The history of an item(s) as it relates to the production of income.

Reports: 1.) self-contained report, 2.) summary report, 3.) the restricted report.

  1. A. The self-contained report contains all the essential elements required of a report and is complete.
  2. B. The summary report highlights the more significant elements of a complete report.
  3. C. The restricted report deals only with agreed to parts or segments of a complete report.

Reversion: Reversion is a lump sum of money paid in the future.

Scarcity: Scarcity or diminished supply suggests there must be a limited supply of the product relative to the market demand for it.

Stream of Income: Stream of Income is payments in the future.

Substantial Evidence: Substantial Evidence is a body of evidence that a reasonable person would accept as adequate to support a conclusion where there is no bias, relationship, emotional involvement or financial interest.

Substitution: Substitution states that when a property may be easily replaced by another, the value of this property tends to be set by the cost of obtaining the equally desirable but substitute property.

Supply: Supply is the amount of an item(s) that sellers are willing to sell at a given time and for a given price.

Supply and Demand: The Principle of Supply and Demand states that markets seek a balance between supply, the amount of an item(s) that sellers are willing to sell at a given price, and demand, the amount buyers are willing and able to buy.

Surplus Productivity: Principle of Surplus Productivity states that the amount of production left over after a balance between supply and demand has been achieved has no economic value.

Technological Obsolescence: Technological obsolescence results from changes in the society’s ability to create a new substitute for a property’s function using modern methods and/or materials.

Transferability: Transferability is the ability of property to change ownership. If a property cannot be sold, demand for it will diminish. This type of property has little if any market value and for all practical purposes is non‑marketable and non‑transferable.

Understandings: In the appraisal, the Appraiser may wish to place certain conditions or disclaimers on the appraisal and various appraisal issues.

Utility: Principal of Utility; an item must have a use or give satisfaction in order for it to have value.

Vacancy: a period of time when an Item(s) is not producing income.

Value: (1) Value is a social concept and agreement. It is the consensus among people interested in a property as to what is a reasonable price for a particular piece of property should be.  (2) Value is the present worth of the future benefits of owning the rights that come with a particular item.

Value Characteristics: Characteristics of an item that enhance an item’s value are called value characteristics.

Value Estimates: An opinion as to the value of an item(s). There are several different kinds.

D. Estimated Fair Market value. This is the price at which property would sell where both buyer and seller are willing, neither being under any stress to buy or sell and both having reasonable knowledge of all the relevant facts. This is the most common value request by clients of personal property appraisers.

E. Estimated Actual Cash Value. This is the most probable price an item should bring in an open and competitive market under all conditions that are requisite to an open and fair market, the buyer and seller acting prudently with knowledge, and based on the assumption that the price is not affected by undue stimuli.

F. Estimated Salvage Value. This value is also known as scrap value. The value of an item when sold for its parts and/or its components.

G. Book Value. This a general accounting term and means the capitalized cost of an item less depreciation.

H. Estimated Orderly Liquidation Value. The most probable price an item will bring in cash under limiting conditions, with reasonable time restraints, advertised, in the appropriate marketplace assuming knowledgeable buyers.

I. Estimated Forced Liquidation Value. The most probable price an item will bring in cash under very limiting conditions, if sold under demanding time constraints, limited advertising and without regard to the best and highest use and without regard to the most favorable market place.

J. Assessed Value. The value assigned to an item for purposes of taxation. Usually done by a county official known as a ‘county assessor.’

K. Estimated Investment Value. An estimate of value of an item as an investment. This value implies a certain rate of return plus a return of the original amount invested.

L. Estimated Collector Value. The value of an item to a highly motivated collector who will often pay more than reason would usually indicate.

M. Estimated Cash Value. The amount of cash that will flow to the owner after an organized sale but with all expenses and costs deducted. Also known as value of an item depreciated.

N. Estimated Value In Use. The value of an item to one particular user. (A machine installed at a plant might be worth much more already installed than sitting on a pallet ready to load on a truck.)

O. Estimated Reproduction Value. The cost to produce an exact duplicate of an item.

P. Estimated Replacement Value – New. The cost of a new similar item of like quality and use.

Q. Estimated Replacement Value – Used. The cost of a similar item that is of like kind and quality.

Value in Exchange: Value In Exchange is the amount of money or things one can receive for an item(s). It is usually, but not always, lower than the purchase price new, say a new car versus a used car. It can, however, be more than one’s original investment as in the case of some antiques and works of art.

Value in Use: Value In Use is the amount of money the property is worth to the user, based on the property’s ability to be of value to the owner.

Value Relative to Condition: Whereas published price and value guides base their figures on assumed or hypothetical item conditions (mean statistical average), the appraiser must judge a item’s condition based on what he sees most frequently in the course of his business (mode) and align this condition to the closest corresponding guide book condition and value. Subsequently, appraisals of rare or unusual items in above or below average (mean) condition will require extra consideration of their value elements. Uncompleted or partially completed restorations and incomplete items require additional value considerations.

Value Relative to Production Numbers: There is not necessarily a direct relationship between rarity and value. Frequently, one‑of‑a‑kind or low production items are of little or marginal interest to the market place which influences the value