Glossary

30 appraisal terms, explained plainly

Grouped by the question you are probably asking rather than alphabetically, because nobody arrives at a glossary already knowing the word they need.

Words in your report

These live on the first two pages of almost every report, and they are precisely the ones people skim past on the way to the figure at the bottom.

Effective date: The day the value belongs to, which is rarely the day the report was typed. It might be today, a date of death, October 1 of the pretax year for an appeal, or a date counsel has fixed. Order the wrong one and the report cannot do the job it was bought for, however good the analysis inside it — and it cannot be redated afterwards. Retrospective appraisals
Intended use: What the report was built to do. Agreed at the outset, printed on its face, and it decides how much work the assignment requires. A report developed for one intended use cannot simply be aimed at a different one later.
Intended user: The person or people entitled to rely on the report. If you are not named, you may not rely on it however the document reached your desk — which is why an appraiser will not hand one to a third party, and occasionally why an appraiser will not even confirm the assignment exists.
Scope of work: What the appraiser actually did: what was inspected, what data was pursued, which approaches were developed. It can be shaped to fit the assignment and the budget. Whatever shape it took must be disclosed, and a scope quietly narrowed is what opposing counsel opens with.
Extraordinary assumption: Something accepted as true without being verified, where being wrong about it would change the value. The routine example is a tenanted unit nobody could get into, assumed to match the ones that were seen. Having one is not a defect in a report. Hiding one is.
Hypothetical condition: Something known to be untrue, assumed deliberately because the question demands it — valuing a house as though a proposed addition already existed, or as though contamination everybody knows about were absent.
Client: A much narrower word here than in ordinary use: whoever engaged the appraiser. Not necessarily the property owner, and not necessarily whoever settled the invoice. It is what fixes the confidentiality obligations, which is why it gets pinned down before anything starts.
Reconciliation: Where the appraiser explains how the approaches were weighed against each other to arrive at one figure, and why one carried more weight than another. Splitting the difference between them is arithmetic and is not reconciliation.
Workfile: Everything sitting behind the report — the data, the notes, the working. USPAP requires it kept for at least five years from preparation, or two years after the final disposition of any proceeding in which the appraiser testified about that assignment, whichever is longer.
USPAP: The Uniform Standards of Professional Appraisal Practice — the rules an appraiser works under, covering ethics, competency, scope and disclosure. Note that nobody is "USPAP certified": it is a standard a report conforms to, not a credential a person holds.

How the number was reached

The machinery. Worth ten minutes if you ever expect to disagree with a number, because these are the only places a disagreement has anywhere to bite.

Sales comparison approach: Valuing a property against what genuinely similar ones actually sold for, with the differences adjusted out one at a time. On a house this is the approach that carries the conclusion nearly every time.
Income approach: Valuing a property on what it earns. It leads on two-to-four family work, where the purchaser is buying a rent roll at least as much as a building, and it needs leases and an operating position to be developed properly. Two-to-four family
Cost approach: What it would cost to rebuild the improvements, less depreciation, plus the land. It earns its keep on new construction and on unusual buildings, where genuinely comparable sales barely exist.
Comparable sale: A sale used as evidence. The word is doing more work than people assume — a house three streets away is not comparable simply by being near, if it feeds a different school district, sits under a different tax rate, or fronts a road of a different character. A comparable is a house a buyer would genuinely have weighed instead.
Adjustment: What is added to or taken off a comparable sale to account for how it differs from the property being valued. Each one needs its own evidence, because in a contested matter each one gets attacked on its own.
Matched pair analysis: Establishing what a feature is worth by finding two otherwise similar sales that differ only in that feature. It is the strongest evidence an adjustment can have, and it is almost never available for the exact adjustment you need it for.
Gross living area: Finished living space above grade, measured to the exterior of the building. A finished basement generally does not count toward it whatever the listing said — and in the older housing stock around here, that one point starts more arguments than everything else combined.
Highest and best use: The most productive use that is both legally permitted and physically possible. For an ordinary house it is almost always the present use. For vacant land, or a site being badly under-used for its zoning, frequently not.
Effective age: How old a building behaves, as against how old it is. A 1955 cape that has been maintained and updated can carry an effective age decades below its actual one, and a neglected 1995 colonial can carry one above.
Functional obsolescence: Value lost to the building itself: a bedroom you can only reach through another bedroom, one bathroom serving four of them, a kitchen at the wrong end of the house.
External obsolescence: Value lost to something outside the property line and outside the owner's control — a rail line at the bottom of the garden, a busy road, a large employer leaving the area.
Exposure time: How long the property would already have had to be on the market to sell at the concluded value. It looks backwards from the effective date and is not a forecast of what will happen next — which is precisely what a relocation appraisal is asked for instead.

New Jersey specifics

Terms that mean something particular in this state, and between them the source of most of the confusion these assignments produce.

Assessed value: What the municipality carries the property at on its own books. It is not an opinion of market value and was never intended to track one between revaluations. The distance between the two is the first thing most callers want explained, and on an appeal it is measured through the district ratio rather than directly.
Certificate of occupancy: The municipality's confirmation that a building, or a unit inside it, is lawful to occupy. Many New Jersey towns require a continued CO on sale or on a change of tenancy. It matters most on small income property: a unit missing from the certificate generally earns no income credit at all. Two-to-four family
Legally nonconforming use: A use that was lawful when it started and would not be permitted under the zoning now in force. It runs right through the older stock in Paterson, Passaic and the Oranges, and it matters because it bounds what could lawfully be rebuilt after a fire.
Transfer inheritance tax: New Jersey's inheritance tax, which turns on who inherits rather than on how much. Spouses, children and grandchildren pay nothing. Siblings pay after a small exemption, and everyone else pays more. The separate New Jersey estate tax was repealed for deaths from 2018, and the two get confused constantly. Estate appraisals

What an appraisal is not

Four other documents that also end in a number, and why none of them substitutes for an appraisal when somebody has to be convinced.

CMA: A comparative market analysis, prepared by a real estate licensee. A pricing opinion, usually free, and often everything anybody needs to set an asking price. It is not developed under USPAP and carries no certification, which is why a court, a lender or a county board gives it little weight the moment a value is genuinely contested. Full comparison
BPO: A broker price opinion. A close relative of the CMA, generally ordered by a lender for portfolio or default work, and frequently written from the street without anybody going inside.
AVM: An automated valuation model — the number a property website shows you. Purely statistical, produced without anybody seeing the house, and therefore blind to the new kitchen, the unpermitted addition and the roof at the end of its life.
Desktop or drive-by appraisal: An appraisal developed without a full interior inspection. It is a real appraisal under USPAP with the reduced scope disclosed on its face, and it is correspondingly weaker anywhere the value has to survive being examined.

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Met a word here that nobody explained to you?

Ring and ask. Tell me what the figure has to do and the date you are working to. Where an appraisal is the wrong tool for it, or where a free one would answer you just as well, you will hear that before anything is ordered.

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