Valcre Glossary of Appraisal Terms

Absolute Net Lease

A lease in which the tenant pays all expenses including structural maintenance, building reserves, and management; often a long-term lease to a credit tenant.  (Dictionary)

Ad Valorem Tax

The amount of property taxes levied based on the value of the property, or a proportion of the property value, subject to taxation. A tax that is measured by value.  (Dictionary)

Aggregate of Retail Values (ARV)

The sum of the separate and distinct market value opinions for each of the units in a condominium, subdivision development, or portfolio of properties, as of the date of valuation. The aggregate of retail values does not represent the value of all the units as though sold together in a single transaction; it is simply the total of the individual market value conclusions. An appraisal has an effective date, but summing the sale prices of multiple units over an extended period of time will not be the value on that one day unless the prices are discounted to make the value equivalent to what another developer or investor would pay for the bulk purchase of the units. Also called the aggregate of the retail values, aggregate retail selling price, or gross retail proceeds.  (Dictionary)

Arm’s-length Transaction

A transaction between unrelated parties who are each acting in his or her own best interest.  (Dictionary)

As-Is Market Value

The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date. Note that the use of the “as is” phrase is specific to appraisal regulations pursuant to FIRREA applying to appraisals prepared for regulated lenders in the United States. The concept of an “as is” value is not included in the Standards of Valuation Practice of the Appraisal Institute, Uniform Standards of Professional Appraisal Practice, or International Valuation Standards. (Interagency Appraisal and Evaluation Guidelines)  (Dictionary)

Assessed Value

The value placed on property subject to taxation at market value or some legally authorized fraction thereof. (IAAO)  (Dictionary)

Average Daily Room Rate (ADR)

In the lodging industry, the net rooms revenue derived from the sale of guest rooms divided by the number of paid occupied rooms.  (Dictionary)

Band of Investment

A technique in which the capitalization rates attributable to components of an investment are weighted and combined to derive a weighted-average rate attributable to the total investment (i.e., debt and equity, land and improvements).  (Dictionary)

Cash-Equivalent Price

The sale price of a property that is equivalent to what a cash buyer would pay.  (Dictionary)

Common Area

1. The total area within a property that is not designed for sale or rental but is available for common use by all owners, tenants, or their invitees, e.g., parking and its appurtenances,malls, sidewalks, landscaped areas, recreation areas, public toilets, truck and service facilities. 
2. In a shopping center, the walkways and areas onto which the stores face and which conduct the flow of customer traffic. (ICSC)  (Dictionary)

Contract Rent

The amount of rental income specified in a lease.  (Dictionary)

Cost Approach

A set of procedures through which a value indication is derived for the fee simple interest in a property by estimating the current cost to construct a reproduction of (or replacement for) the existing structure, including indirect costs and an entrepreneurial incentive; deducting depreciation from the total cost; and adding the estimated land value. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised.  (16th Edition)

Curable Functional Obsolescence

An element of depreciation; a curable defect caused by a flaw involving the structure, materials, or design, which can be practically and economically corrected.  (Dictionary)

Debt Coverage Ratio (DCR)

The ratio of net operating income to annual debt service (DCR = NOI/IM), which measures the relative ability of a property to meet its debt service out of net operating income; also called debt service coverage ratio (DSCR). A higher DCR typically indicates a greater ability for a property to withstand a reduction of income, providing an improved safety margin for a lender.  (Dictionary)

Deferred Maintenance

Property components that should have been repaired or replaced during the course of normal maintenance.  (Dictionary)

Depreciation

In appraisal, a loss in the value of improvements from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the contributory value of the improvement on the same date.  (Dictionary)

Direct Costs

Expenditures for the labor and materials used in the construction of improvements; also called hard costs.  (Dictionary)

Discounted Cash Flow (DCF) Analysis

The procedure in which a discount rate is applied to a set of projected income streams or a reversion, if any. The analyst specifies the quantity, variability, timing, and duration of the income streams and the quantity and timing of the reversion, and discounts each to its present value at a specified yield rate.  (Dictionary)

Discount Rate

A rate of return on capital used to convert future payments or receipts into present value.  (Dictionary)

Disposition Value

The most probable price that a specified interest in property should bring under the following conditions:

1. Consummation of a sale within a specified time, which is shorter than the typical exposure time for such a property in that market.
2. The property is subjected to market conditions prevailing as of the date of valuation.
3. Both the buyer and seller are acting prudently and knowledgeably.
4. The seller is under compulsion to sell.
5. The buyer is typically motivated.
6. Both parties are acting in what they consider their best interests.
7. An adequate marketing effort will be made during the exposure time specified by the client.
8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
9. 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 can also be modified to provide for valuation with specified financing terms.  (Dictionary)

Easement

The right to perform a specific act on a property owned by another. Access or right-of-way easements may be acquired by private parties or public utilities. Governments may be the beneficiaries of easements placed on privately owned land that is dedicated to conservation, open space, or preservation.  (Dictionary)

Economic Life

The period over which building and site improvements contribute to property value.  (Dictionary)

Effective Age

The age of property that is based on the amount of observed deterioration and obsolescence it has sustained, which may be different from its chronological age.  (Dictionary)

Effective Date

1. The date on which the appraisal opinion applies. (SVP, 2021)
2. The date to which an appraiser’s analyses, opinions, and conclusions apply; also referred to as date of value. (USPAP®, 2024 ed.)
3. The date that a lease goes into effect.  (Dictionary)

Effective Gross Income (EGI)

The anticipated income from all operations of the real estate after an allowance is made for vacancy and collection losses and an addition is made for any other income.  (Dictionary)

Effective Gross Income Multiplier (EGIM)

The ratio between the sale price (or value) of a property and its effective gross income.  (Dictionary)

Effective Rent

Total base rent, or minimum rent stipulated in a lease, over the specified lease term minus the value of rent concessions provided at the landlord expense; the rent that is effectively paid by a tenant net of financial concessions provided by a landlord.  (Dictionary)

Eminent Domain

The right of government to take private property for public use upon the payment of just compensation. The Fifth Amendment of the US Constitution, also known as the takings clause, guarantees payment of just compensation upon appropriation of private property.  (Dictionary)

Entrepreneurial Incentive

The amount an entrepreneur expects or wants to receive as compensation for providing coordination and expertise and assuming the risks associated with the development of a project. Entrepreneurial incentive may be distinguished from entrepreneurial profit (often called developer’s profit) in that it is the expectation of future profit actually earned on a development or improvement.  (Dictionary)

Entrepreneurial Profit

A market-derived figure that represents the amount that entrepreneurs received for their contribution to a past project to compensate for their time, effort, knowledge, and risk; the difference between the total development cost of a property and its market value after completion, which represents the entrepreneur’s compensation for the risk and expertise associated with development. An entrepreneur is motivated by the prospect of future value enhancement (i.e., the entrepreneurial incentive). An entrepreneur who successfully creates value through new development, expansion, renovation, or an innovative change of use is rewarded by entrepreneurial profit. Entrepreneurs may also fail and suffer losses.  (Dictionary)

Excess Land

Land that is not needed to serve or support the existing use. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land has the potential to be sold separately and is valued separately.  (Dictionary)

Excess Rent

The amount by which contract rent exceeds market rent at the time of the appraisal; created by a lease favorable to the landlord (lessor) and may reflect unusual management, unknowledgeable or unusually motivated parties, a lease execution in an earlier, stronger rental market, lessor concessions that have already been enjoyed by the lessee, or an agreement of the parties. Due to the higher risk inherent in the receipt of excess rent, it may be calculated separately and capitalized or discounted at a higher rate in the income capitalization approach.  (Dictionary)

Expense Stop

A clause in a lease that limits the landlord’s expense obligation, which results in the lessee paying operating expenses above a stated level or amount.  (Dictionary)

Exposure Time

1. The time a property remains on the market.
2. An opinion, based on supporting market data, of the length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. (USPAP®, 2024 ed.)  (Dictionary)

External Obsolescence

A type of depreciation; a diminution in property value caused by negative external influences and generally incurable on the part of the owner, landlord, or tenant.  (Dictionary)

Extraordinary Assumption

An assignment-specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser’s opinions or conclusions. Comment: Uncertain information might include physical, legal, or economic characteristics of the subject property, or conditions external to the property, such as market conditions or trends, or the integrity of data used in an analysis. (USPAP®, 2024 ed.)  (Dictionary)

Fair Market Value

1. In nontechnical usage, a term that is generally synonymous with the contemporary usage of market value.
2. As used in condemnation, litigation, income tax, and property tax situations, a term that is similar in concept to market value but may be defined explicitly by the relevant agency or interpreted differently by court precedent. In some situations, the interpretation of fair market value is more directly comparable to the concept of fair value than to market value in exchange.  (Dictionary)

Feasibility Analysis

A study of the cost-benefit relationship of an economic endeavor. (USPAP®, 2024 ed.)  (Dictionary)

Fee Simple Estate

Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.  (Dictionary)

Floor Area Ratio (FAR)

The relationship between the above-ground floor area of a building, as described by the zoning or building code, and the area of the plot on which it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible floor area of a building is twice the total land area.  (Dictionary)

Functional Obsolescence

The impairment of functional capacity of improvements according to market tastes and standards.  (Dictionary)

Functional Utility

The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms.  (Dictionary)

Furniture, Fixtures, and Equipment (FF&E)

Business trade fixtures and personal property, exclusive of inventory, related to running the going concern.  (Dictionary)

Going-concern Value

An outdated label for the market value of all the tangible and intangible assets of an established and operating business with an indefinite life, as if sold in aggregate; more accurately termed the market value of the going concern or market value of the total assets of the business.  (Dictionary)

Gross Building Area (GBA)

1. Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls of the above-grade area. This includes mezzanines and basements if and when typically included in the market area of the type of property involved.
2. Gross leasable area plus all common areas.
3. For residential space, the total area of all floor levels measured from the exterior of the walls and including the superstructure and substructure basement; typically used for cost estimating purposes.  (Dictionary)

Gross Leasable Area (GLA) - Commercial

Total floor area designed for the occupancy and exclusive use of tenants, including basements and mezzanines; measured from the center of joint partitioning to the outside wall surfaces.  (Dictionary)

Gross Living Area (GLA) - Residential

Total area of finished, above-grade residential space; calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space. (Finished basements and attic areas are not generally included in total gross living area. Local practices, however, may differ.)  (Dictionary)

Highest & Best Use

The reasonably probable use of property that results in the highest value. The four criteria that the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity.  (Dictionary)

Highest and Best Use of Land or a Site as Though Vacant

Among all reasonable, alternative uses, the use that yields the highest present land value, after payments are made for labor, capital, and coordination. The use of a property based on the assumption that the parcel of land is vacant or can be made vacant by demolishing any improvements.  (Dictionary)

Highest and Best Use of Property as Improved

The use that should be made of a property as it exists. An existing improvement should be renovated or retained as is so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one.  (Dictionary)

Hypothetical Condition

1. A condition that is presumed to be true when it is known to be false. (SVP, 2021)
2. A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis. Comment: Hypothetical conditions are contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. (USPAP®, 2024 ed.)  (Dictionary)

Income Capitalization Approach

Specific appraisal techniques applied to develop a value indication for a property based on its earning capability.  (Dictionary)

Incurable Functional Obsolescence

An element of depreciation; a defect caused by a deficiency or superadequacy involving the structure, materials, or design that cannot be practically or economically corrected.  (Dictionary)

Indirect Costs

Expenditures or allowances for items other than labor and materials that are necessary for construction, but are not typically part of the construction contract. Indirect costs may include administrative costs; professional fees; financing costs and the interest paid on construction loans; taxes and the builder’s or developer’s all-risk insurance during construction; and marketing, sales, and lease-up costs incurred to achieve occupancy or sale.  (Dictionary)

Insurable Value

Value used by insurance companies as the basis for insurance. Often considered to be replacement or reproduction cost plus allowances for debris removal or demolition less deterioration and non-insurable items. Sometimes cash value or market value, but often entirely a cost concept.  (MVS)

Liquidation Value

The most probable price that a specified interest in property should bring under the following conditions:

1. Consummation of a sale within a short time period.
2. The property is subjected to market conditions prevailing as of the date of valuation.
3. Both the buyer and seller are acting prudently and knowledgeably.
4. The seller is under extreme compulsion to sell.
5. The buyer is typically motivated.
6. Both parties are acting in what they consider to be their best interests.
7. A normal marketing effort is not possible due to the brief exposure time.
8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
9. 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 can also be modified to provide for valuation with specified financing terms. (Dictionary)

Interim Use

The use contemplated by the market participants that the subject real estate can be put to while waiting for certain subsequent factors to occur.  (Dictionary)

Leased Fee Interest

The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires or otherwise terminates.  (Dictionary)

Leasehold Interest

The tenant’s possessory interest created by a lease.  (Dictionary)

Legally Nonconforming Use

A use that was lawfully established and maintained, but no longer conforms to the use regulations of its current zoning; sometimes known as a legally nonconforming use.  (Dictionary)

Market Study

An analysis of the market conditions of supply, demand, and pricing for a specific property type in a specific area.  (Dictionary)

Marketability Study

The study of how a specific property is expected to perform in a specific market. A marketability analysis expands on a market analysis by addressing a specific property.  (Dictionary)

Market Analysis

A process for examining the demand for and supply of a property type and the geographic market area for that property type.  (Dictionary)

Market Area

The geographic region from which a majority of demand comes and in which the majority of competition is located. Depending on the market, a market area may be further subdivided into components such as primary, secondary, and tertiary market areas, or the competitive market area may be distinguished from the general market area.  (Dictionary)

Market Rent

The most probable rent that a property should bring in a competitive and open market under all conditions requisite to a fair lease transaction, the lessee and lessor each acting prudently and knowledgeably, and assuming the rent is not affected by undue stimulus.  

• Lessee and lessor are typically motivated;
• Both parties are well informed or well advised, and acting in what they consider their best interests;
• Payment is made in terms of cash or in terms of financial arrangements comparable thereto;
• and
• The rent reflects specified terms and conditions, such as permitted uses, use restrictions, expense obligations, duration, concessions, rental adjustments and revaluations, renewal and purchase options, and tenant improvements (TIs).  (Dictionary)

Market Value

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.  (Office of Comptroller of the Currency (OCC), Title 12 of the Code of Federal Regulations, Part 34, Subpart C – Appraisals, 34.42 (g))

Net Operating Income (NOI)

The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income but before deductions for mortgage debt service and noncash charges such as depreciation deductions allowed for income tax purposes are made. Note: This definition mirrors the convention used in corporate finance and business valuation for EBITDA (earnings before interest, taxes, depreciation, and amortization).  (Dictionary)

Obsolescence

One cause of depreciation; an impairment of desirability and usefulness caused by new inventions, changes in design, improved processes for production, or external factors that make a property less desirable and valuable for a continued use; may be either functional or external.  (Dictionary)

Replacement Cost

The estimated cost to construct, at current prices as of a specific date, a substitute for a building or other improvements, using modern materials and current standards, design, and layout.  (Dictionary)

Reproduction Cost

The estimated cost to construct, at current prices as of the effective date of the appraisal, a duplicate or replica of the building being appraised, using the same or similar materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject building.  (Dictionary)

Retrospective Value Opinion

A value opinion effective as of a specified historical date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific prior date. Value as of a historical date is frequently sought in connection with property tax appeals, damage models, lease renegotiation, deficiency judgments, estate tax, and condemnation. Inclusion of the type of value with this term is appropriate, e.g., “retrospective market value opinion.”  (Dictionary)

Sales Comparison Approach

The process of deriving a value indication for the subject property by comparing sales of similar properties to the property being appraised, identifying appropriate units of comparison, and making adjustments to the sale prices (or unit prices, as appropriate) of the comparable properties based on relevant, market-derived elements of comparison. The sales comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant when an adequate supply of comparable sales is available.  (Dictionary)

Scope of Work

1. The type of data and the extent of research and analyses. (SVP, 2021)
2. The type and extent of research and analyses in an appraisal or appraisal review assignment. (USPAP®, 2024 ed.)  (Dictionary)

Shopping Center Types

Neighborhood Shopping Center: 30,000 to 100,000 sq. ft.; immediate neighborhood; population of 3,000 to 40,000; radius of 3 miles; driving time of 5 to 10 minutes; typical anchor: supermarket.

Community Shopping Center: 100,000 to 400,000 sq. ft.; population of 40,000 to 150,000; radius of 3 to 6 miles; driving time of 10 to 20 minutes; typical anchor: junior department store, large variety, discount, or department store.

Regional Shopping Center: 300,000 to 900,000 sq. ft. (one or more department stores of approximately 200,000 sq. ft. each plus small tenant space); minimum population of 150,000; radius of 5 to 15 miles; driving time of 20 minutes; typical anchor: one or two full-line department stores.

Super-Regional Center: 600,000 to 2.0 million sq. ft. or more; minimum population of 300,000; radius of 5 to 25 miles; driving time of 30 minutes or more; typical anchor: three or more full-line department stores.  (16th Edition)

Superadequacy

An excess in the capacity or quality of a structure or structural component; determined by market standards.  (Dictionary)

Surplus Land

Land that is not currently needed to support the existing use but cannot be separated from the property and sold off for another use.  (Dictionary)

Tenant Improvements (TIs)

1. Fixed improvements to the land or structures installed by the landlord or tenant for use by a lessee.
2. The original installation of finished tenant space in a construction project; subject to periodic change for succeeding tenants.  (Dictionary)

Triple Net Lease

A lease in which the tenant assumes all expenses (fixed and variable) of operating a property except that the landlord is responsible for structural maintenance, building reserves, and management; also called NNN, net net net lease, or fully net lease.  (Dictionary)

Usable Area

The area that is actually used by the tenants measured from the inside of the exterior walls to the inside of the walls separating the space from hallways and common areas.  (Dictionary)

Useful Life

The estimated period during which improvements will continue to provide utility; an estimate of the number of years remaining in the useful life of the structure or structural components as of the effective date of the appraisal; used in the breakdown method of estimating depreciation.  (Dictionary)

Vacancy and Collection Loss

A deduction from potential gross income (PGI) made to reflect anticipated income reductions due to vacancies, tenant turnover, and nonpayment of rent; also called vacancy and credit loss or vacancy and contingency loss.  (Dictionary)

Yield Capitalization

A method used to convert future benefits into present value by (1) discounting each future benefit at an appropriate yield rate, or (2) developing an overall rate that explicitly reflects the investment’s income pattern, holding period, income and value change, and yield rate.  (Dictionary)

These definitions were extracted from the following sources or publications:

• The Dictionary of Real Estate Appraisal, Eighth Edition, Appraisal Institute, Chicago, Illinois, 2026 (Dictionary).
• Uniform Standards of Professional Appraisal Practice, 2024-2025 Edition (USPAP).
• The Appraisal of Real Estate, Sixteenth Edition, Appraisal Institute, Chicago, Illinois, 2026 (16th Edition).
• Marshall Valuation Service, Marshall & Swift, Los Angeles, California (MVS).