Appraisal & Valuation Terms

How property value is estimated - appraisal approaches, adjustments, highest and best use and valuation terms.

All 30 terms

  • The aggregate adjustment is a line item on a mortgage's initial escrow account disclosure that reconciles the actual monthly escrow payments collected against the cushion RESPA allows a lender to hold — it's a math correction, not a fee, and is usually a small negative number.

  • AppraisalIntermediate

    An appraisal is a licensed professional's independent opinion of a property's market value, ordered by a lender to confirm the home is worth at least the loan amount before approving financing.

  • An appraisal contingency lets a buyer renegotiate or cancel a purchase contract if the property appraises for less than the agreed purchase price.

  • Appraisal GapIntermediate

    An appraisal gap occurs when a property appraises for less than the agreed purchase price, leaving the buyer to cover the difference in cash, renegotiate, or walk away if an appraisal contingency allows it.

  • Appraised value is a licensed appraiser's professional opinion of what a property is worth, based on comparable sales, condition, and market data — used by lenders to confirm a loan amount is justified.

  • An AVM is a software-based estimate of a property's value generated from public records, tax data, and recent comparable sales — fast and free, but less precise than a licensed appraisal.

  • The band-of-investment method builds an overall capitalization rate by weighting the required returns on each piece of a property's capital stack — typically the mortgage constant on the debt portion and the required equity yield on the equity portion — by their share of total financing.

  • A certificate of value is a form some states require to be filed alongside a deed, stating the actual sale price or consideration paid, so the county can accurately record the transaction for tax and statistical purposes.

  • Comparable sales, or "comps," are recently sold properties similar in location, size, condition, and features to a subject property, used to estimate its value.

  • A CMA is an agent-prepared report estimating a property's value by comparing it to similar recently sold, active, and pending listings in the area — commonly used to help set a listing price.

  • Contributory value is the dollar amount a specific feature, improvement, or component adds to a property's overall value — the practical output of applying the principle of contribution.

  • The cost approach values a property by adding the land's value to the depreciated cost of reproducing or replacing its improvements — most reliable for new construction or unique properties with few comparable sales.

  • Direct capitalization converts a single year's stabilized net operating income directly into an estimate of value by dividing it by a market-derived cap rate — the simplest form of the income approach.

  • Distress value is the price a property sells for under compulsion — such as foreclosure, a rushed estate sale, or severe financial pressure — typically below true market value because the seller lacked normal time and negotiating leverage to find the best buyer.

  • The depreciated replacement cost (DRC) method is a RICS-recognized valuation approach, used mainly in the UK, for specialized properties with few or no comparable sales — valuing the site's land value plus the depreciated cost of replacing its buildings, similar to the U.S. cost approach.

  • Highest and best use is the legally permissible, physically possible, financially feasible use of a property that produces its maximum value — the foundational assumption behind every appraisal.

  • The income approach values a property based on the income it generates — typically by capitalizing net operating income at a market cap rate — and is the primary method used for income-producing commercial real estate.

  • An interim valuation is a formal property valuation performed at a specific point between scheduled major valuations or milestones — for example, a mid-construction valuation to support the next draw on a construction loan, or an updated valuation requested partway through a lease term.

  • Land assemblage is the process of acquiring two or more adjoining parcels under single ownership to combine them into one larger site — typically to unlock plottage value or make a site large enough for a specific development.

  • Market value is the price a property would likely sell for in the current market, given normal conditions and a willing buyer and seller — distinct from appraised value or assessed value, which are formal estimates for specific purposes.

  • The overall capitalization rate (OAR), sometimes written R₀, is the appraisal-standard term for the cap rate applied to a property's total value — as opposed to a rate applied to just one component, like the land or the building alone.

  • Plottage is the increase in value that results from combining (assembling) two or more adjoining parcels under single ownership, when the combined site is worth more than the sum of the individual parcels' values.

  • Price per square foot is a property's price divided by its total livable square footage, used to compare properties of different sizes within the same market.

  • The principle of contribution holds that the value of any single component or improvement to a property equals the amount it adds to the total property value — not what it cost to install.

  • RCNLD is the cost approach's core calculation: the cost to build the improvements new today, minus accumulated depreciation from age, wear, and obsolescence — added to land value to estimate total property value.

  • Reconciliation is the final step of the appraisal process, where the appraiser weighs the value indications from the cost, sales comparison, and income approaches — giving more weight to whichever is most reliable for that property type — to arrive at a single opinion of value.

  • Replacement cost is the cost to construct a building of equivalent utility using current materials, design standards, and construction methods — not an exact replica of the original.

  • Reproduction cost is the cost to construct an exact replica of a building today, using the same materials, design, and construction methods as the original — including any outdated or inefficient features.

  • The sales comparison approach estimates value by analyzing recent sales of similar properties and adjusting for differences in location, size, condition, and features — the primary method used for most residential appraisals.

  • Superadequacy is a form of functional obsolescence where a feature or system exceeds what the market actually wants or needs — meaning its cost is higher than the value it contributes.

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Definitions are provided for general educational purposes and are not financial, legal, tax, or real estate advice. Rules vary by transaction and location - verify important decisions with qualified professionals.