Aggregate Retail Value

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The sum of the appraised values of the individual units in a subdivision, as if all of the units were completed and available for retail sale, as of the date of the appraisal. The sum of the retail sales includes an allowance for lot premiums, if applicable, but excludes all allowances for carrying costs. Also called gross retail value[1]. This value should not be confused with Bulk Retail Value.

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As-is Premise

 

"Market Value "as is" on appraisal date means an estimate of the market value of a property in the condition observed upon inspection and as it physically and legally exists without hypothetical conditions, assumptions, or qualifications as of the date the appraisal is prepared."[2]

 

Bonus Rent

 

See excess rent.

 

Bulk Retail Value

 

See Market Value-Bulk or Wholesale.

 

Cash Equivalence

 

A price expressed in terms of cash, as distinguished from a price expressed totally or partly in terms of the face amounts of notes or other securities that cannot be sold at their face amounts. Calculating the cash-equivalent price requires an appraiser to compare transactions involving atypical financing to transactions involving comparable properties financed at typical market terms.[3]

 

Contract, Coupon, Face, or Nominal Rent

 

The actual rental income specified in a lease[4]. It does not reflect any offsets for free rent, unusual tenant improvement conditions, or other factors that may modify the effective rent payment.

 

Coupon Rent

 

See Contract, Coupon, Face, or Nominal Rent

 

Disposition Value

 

The most probable price that a specified interest in real property is likely to bring under all of the following conditions:

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• Consummation of a sale will occur within a limited future marketing period specified by the client

• The actual market conditions currently prevailing are those to which the appraised property interest is subject

• The buyer and seller is each acting prudently and knowledgeable

• The seller is under compulsion to sell

• The buyer is typically motivated

• Both parties are acting in what they consider their best interests

• An adequate marketing effort will be made in the limited time allowed for the completion of a sale

• Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto

• 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.

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This definition can also be modified to provide for valuation with specified financing terms.

 

Effective Rent

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• The rental rate net of financial concessions such as periods of no rent during the lease term; may be calculated on a discounted basis, reflecting the time value of money, or on a simple, straight-line basis[5].

• The economic rent paid by the lessee when normalized to account for financial concessions, such as escalation clauses, and other factors. Contract, normal, rents must be converted to effective rents to form a consistent basis of comparison between comparables.

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Excess Land

 

In regard to an improved site, the land not needed to serve or support the existing improvement. In regard to a vacant site or a site considered as though vacant, the land not needed to accommodate the site's primary highest and best use. Such land may be separated from the larger site and have its own highest and best use, or it may allow for future expansion of the existing or anticipated improvement. See also surplus land.[6]

 

Excess/Bonus 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 a locational advantage, unusual management, unknowledgeable parties, or a lease execution in an earlier, stronger rental market. Due to the higher risk inherent in the receipt of excess rent, it may be calculated separately and capitalized at a higher rate in the income capitalization approach[7].

 

Extraordinary Assumption

 

An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser's opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information 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. An extraordinary assumption may be used in an assignment only if:

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• It is required to properly develop credible opinions and conclusions;

• The appraiser has a reasonable basis for the extraordinary assumption;

• Use of the extraordinary assumption results in a credible analysis; and

• The appraiser complies with the disclosure requirements set forth in USPAP for extraordinary assumptions.[8]

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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.[9]

 

Floor Area Ratio (FAR)

 

The relationship between the above-ground floor area of a building, as described by the 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[10].

 

Full-Service Lease

 

A lease in which rent covers all operating expenses. Typically, full-service leases are combined with an expense stop, the expense level covered by the contract lease payment. Increases in expenses above the expense stop level are passed through to the tenant and are known as expense pass-throughs.

 

Going Concern Value

 

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; also called value of the going concern.

 

Tangible and intangible elements of value in a business enterprise resulting from factors such as having a trained work force, an operational plant, and the necessary licenses, systems, and procedures in place.

 

The value of an operating business enterprise. Goodwill may be separately measured but is an integral component of going-concern value. (USPAP, 2002 ed.)[11]

 

Gross Building Area (GBA)

 

The total floor area of a building, including below-grade space but excluding unenclosed areas, measured from the exterior of the walls. Gross building area for office buildings is computed by measuring to the outside finished surface of permanent outer building walls without any deductions. All enclosed floors of the building including basements, mechanical equipment floors, penthouses, and the like are included in the measurement. Parking spaces and parking garages are excluded[12].

 

Gross Living Area (GLA)

 

The total area of finished, above-grade residential space; calculated by measuring the outside perimeter of the structure and typically includes only finished, habitable, above-grade living space.[13]. 

 

Hypothetical Condition

 

That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions 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. A hypothetical condition may be used in an assignment only if:

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• Use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison;

• Use of the hypothetical condition results in a credible analysis; and

• The appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions.[14]

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Insurable Value

 

Insurable Value is based on the replacement and/or reproduction cost of physical items that are subject to loss from hazards. Insurable value is that portion of the value of as asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy. This value is often controlled by state law and varies from state to state.

 

Investment Value

 

The specific value of an investment to a particular investor or class of investors based on individual investment requirements; distinguished from market value, which is impersonal and detached[15]. In contrast to market value, investment value is value to an individual, not value in the marketplace. Investment value reflects the subjective relationship between a particular investor and a given investment. When measured in dollars, investment value is the price an investor would pay for an investment in light of its perceived capacity to satisfy his or her desires, needs, or investment criteria must be known. Criteria to evaluate a real estate investment are not necessarily set down by the individual investor; they may be established by an expert on real estate and its value, an appraiser.

 

Lease

 

A written contract in which the rights to use and occupy land or structures are transferred by the owner to another for a specified period of time in return for a specified rent.[16]

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Leased Fee Interest

 

An ownership interest held by a landlord with the rights of use and occupancy conveyed by the lease to others. The rights of the lessor (leased fee owner) and the leased fee are specified by contract terms with the lease.[17]

 

Leasehold Interest

 

The interest held by the lessee (the tenant/renter), through a lease conveying the rights of use and occupancy for a stated term under certain conditions.[18]

 

Liquidation Value

 

The most probable price that a specified interest in real property is likely to bring under all of the following conditions:

 

• Consummation of a sale will occur within a severely limited future marketing period specified by the client

• The actual market conditions currently prevailing are those to which the appraised property interest is subject

• The buyer and seller is each acting prudently and knowledgeable

• The seller is under extreme compulsion to sell

• The buyer is typically motivated

• Both parties are acting in what they consider their best interests

• An adequate marketing effort will be made in the limited time allowed for the completion of a sale

• Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto

• 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.

 

Load Factor

 

The amount added to usable area to calculate the rentable area. It is also referred to as a “rentable add-on factor” which, according to BOMA, “is computed by dividing the difference between the usable square footage and rentable square footage by the amount of the usable are. Convert the figure into a percentage by multiplying by 100.”

 

Market value

 

A type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal.

 

• the relationship, knowledge, and motivation of the parties (i.e., seller and buyer);

• the terms of sale (e.g., cash, cash equivalent, or other terms); and

• the conditions of sale (e.g., exposure in a competitive market for a reasonable time prior to sale).[19]

 

Market Value “as if complete” on the appraisal date

 

Market value as is complete on the appraisal date in an estimate of the market value of a property with all construction, conversion, or rehabilitation hypothetically completed, or under other specified hypothetical conditions as of the date of the appraisal. With regard to properties wherein anticipated market conditions indicate that stabilized occupancy is not likely as of the date of completion, this estimate of value should reflect the market value of the property as if complete and prepared for occupancy by tenants.

 

Market Value “as is”

 

The value of specific ownership rights to an identified parcel of real estate as of the effective date of the appraisal; relates to what physically exists and is legally permissible and excludes all assumptions concerning hypothetical market conditions or possible rezoning.[20]

 

Market Value - Bulk or Wholesale

 

Bulk or wholesale market value is the value of the property consisting of multiple parcels, as if sold to a single buyer. It is not the sum of the retail values.

 

Market Rent

 

The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the specified lease agreement including term, rental adjustment and revaluation, permitted uses, use restrictions, and expense obligations; the lessee and lessor each acting prudently and knowledgeably, and assuming consummation of a lease contract as of a specified date and the passing of the leasehold from lessor to lessee under conditions whereby:

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1. Lessee and lessor are typically motivated.

2. Both parties are well informed or well advised, and acting in what they consider their best interests.

3. A reasonable time is allowed for exposure in the open market.

4. The rent payment is made in terms of cash in United States dollars, and is expressed as an amount per time period consistent with the payment schedule of the lease contract.

5. The rental amount represents the normal consideration for the property leased unaffected by special fees or concessions granted by anyone associated with the transaction.[21]

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Marketing Period/Time

 

The time it takes an interest in real property to sell on the market subsequent to the date of an appraisal[22].

 

Net Effective Rent

 

Rental rate adjusted for lease concessions.[23]

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Net Rentable Area (NRA)

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• The area on which rent is computed.

• The Rentable Area of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floor.

 

No deductions shall be made for columns and projections necessary to the building. Include space such as mechanical room, janitorial room, restrooms, and lobby of the floor.

 

Net Lease

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Lease in which all or some of the operating expenses are paid directly by the tenant. The landlord never takes possession of the expense payment. In a Triple Net Lease all operating expenses are the responsibility of the tenant, including property taxes, insurance, interior maintenance, and other miscellaneous expenses. However, management fees and exterior maintenance are often the responsibility of the lessor in a triple net lease. A modified net lease is one in which some expenses are paid separately by the tenant and some are included in the rent.

 

Prospective Future Value “upon completion of construction”

 

Prospective future value “upon completion of construction” is the prospective value of a property on the future date that construction is completed, based upon market conditions forecast to exist, as of the forecasted completion date. The value estimate at this stage is stated in current dollars unless otherwise indicated.

 

Prospective Future Value “upon reaching stabilized occupancy”

 

Prospective future value “upon reaching stabilized occupancy” is the prospective value of a property at a future point in time when all improvements have been physically constructed and the property has been leased to its optimum level of long-term occupancy. The value estimate at this stage is stated in current dollars unless otherwise indicated.

 

Retrospective Value

 

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.”

 

Per the Uniform Standards and Principles of Appraisal Practice (USPAP):

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1. Transactions that occurred prior to the effective (retrospective) date may not reflect the same market conditions as those occurring after. Comparable data must be selected from the same market area (if possible) and must be subject to the same market conditions as the subject property up to and immediately preceding the effective date of report.

2. In appraisal assignments for which the date of value is a retrospective date, the appraiser must rely on comparable sales that occurred prior to the retrospective value date.

3. The appraiser must rely on the best available information concerning the nature of the subject property as of the date of value. Such an appraisal would be based on one or more extraordinary assumptions about the property condition and other characteristics that are as presumed to be true in the appraisal assignment.

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Shell Space

 

Space which has not had any interior finishing installed, including even basic improvements such as ceilings and interior walls, as well as partitions, floor coverings, wall coverings, etc.

 

Special Purpose Property

 

A limited-market property with a unique physical design, special construction materials, or a layout that restricts its utility to the use for which it was built; also called 'special-design property.'[24]

 

Surplus Land

 

Land not necessary to support the highest and best use of the existing improvements, but because of physical limitations, building placement, or neighborhood norms, cannot be sold off separately. Such land may or may not contribute positively to value and may or may not accommodate future expansion of an existing or anticipated improvement.[25]

 

Usable Area

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1. The area actually used by individual tenants.

2. The Usable Area of an office building is computed by measuring to the finished surface of the office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent outer building walls. Excludes areas such as mechanical rooms, janitorial room, restrooms, lobby, and any major vertical penetrations of a multi-tenant floor.

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Usable Lot Area

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The lot area suitable for building and/or use. The difference between actual lot area and usable lot area can be substantial in areas with hilly topography. Non-usable lot area or lot area with little or no utility carries very little value, if any. 

 

Use Value

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The value a specific property has for a specific use; may be the highest and best use of the property or some other use specified as a condition of the appraisal; may be used where legislation has been enacted to preserve farmland, timberland, or other open space land on urban fringes. See also exchange value; value in use.”[26]

 

Value in Use

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The value a specific property has to a specific person or specific firm as opposed to the value to persons or the market in general. Special-purpose properties such as churches, schools, and public buildings, which are seldom bought and sold in the open market, can be valued on the basis of value in use. The value in use to a specific person may include a sentimental value component. The value in use to a specific firm may be the value of the plant as part of an integrated multi-plant operation. See also use value.[27]

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Sources:

 

[1] The Dictionary of Real Estate Appraisal, Fourth Edition, 2002, The Appraisal Institute, page 8.

[2] Federal Register, Volume 55, No. 165, Friday, August 24, 1990, Rules and Regulations, 12 CFR Part 34.42(f).

[3] The Dictionary of Real Estate Appraisal, Fourth Edition, 2002, The Appraisal Institute, page 43.

[4] Ibid, page 63.

[5] Ibid, page 93.

[6] Ibid, page 103.

[7] Ibid, page 104

[8] Ibid, page 106-107.

[9] Ibid, page 113

[10] Ibid, page 117

[11] Ibid, page 127

[12] Ibid, page 131

[13] Ibid, page 131

[14] Ibid, page 141.

[15] Ibid, page 152.

[16] Ibid, page 161

[17] Ibid, page 161.

[18] Ibid, page 162.

[19]Uniform Standards of Professional Appraisal Practice (USPAP), 2014-2015 Edition, page U-3.

[20] The Dictionary of Real Estate Appraisal, Fourth Edition, 2002, The Appraisal Institute, page 306.

[21] Ibid, page 176.

[22] Ibid, page 175.

[23] Ibid, page 194.

[24] Ibid, page 272.

[25] Ibid, page 284.

[26] Ibid, page 303.

[27] Ibid, page 306