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 sit on the first two pages of nearly every appraisal, and they are exactly the ones people scroll past on the way to the number.

Effective date: The day the value belongs to, which is not the day the report was written. It might be today, a date of death, the day a gift was made, or a date counsel has fixed. Get it wrong and the report is useless for the purpose it was ordered for, however good the analysis inside it. Retrospective appraisals
Intended use: What the report was made for. Settled at the start, written on its face, and it governs how much work the assignment needs. A report built for one intended use cannot simply be pointed at another.
Intended user: Whoever is entitled to rely on the report. Not being named means you may not rely on it, no matter how the document reached your desk — which is why an appraiser will not pass one to a third party without instruction.
Scope of work: What the appraiser actually did — what was inspected, what data was chased down, which approaches were developed. It can be cut to fit the assignment, and whatever shape it took has to be disclosed.
Extraordinary assumption: Something taken as true without being verified, where being wrong about it would move the value. The everyday example is a room nobody could get into, assumed to be in the condition described. Having one is not a flaw. Concealing one is.
Hypothetical condition: Something known to be false, assumed on purpose because the question requires it — valuing a property as though it were free of contamination when everyone knows it is not.
Client: A narrow term in appraisal: whoever engaged the appraiser. Not necessarily the owner of the property, and not necessarily the person who paid the invoice. It is what sets the confidentiality obligations.
Reconciliation: The part where the appraiser explains how the approaches were weighed against one another to land on a single figure. Averaging them is arithmetic, not reconciliation.
Workfile: Everything standing behind the report. It has to be kept for at least five years from preparation, or at least two years after the final disposition of any proceeding the appraiser testified in about that assignment — whichever runs longer.
USPAP: The Uniform Standards of Professional Appraisal Practice: the rules an appraiser works to, covering ethics, competency, scope and disclosure. It is the thing standing between an appraisal and an opinion.

How the number was reached

The mechanics. Worth reading if you ever expect to argue with a figure, because these are the places an argument actually has purchase.

Sales comparison approach: Pricing a property against what similar ones actually sold for, with the differences adjusted out. On houses this is the approach that carries the conclusion almost every time.
Income approach: Pricing a property on what it collects. It leads on small income property, where the buyer is purchasing a rent roll at least as much as a building. Two-to-four family
Cost approach: Replacement cost of the improvements, less depreciation, plus the land. It earns its place on new construction and special-purpose buildings, where comparable sales barely exist.
Comparable sale: A sale used as evidence. That word "comparable" is doing real work: a house four streets away is not comparable merely by being close, if it sits in another school district or on a road of a different character.
Adjustment: What gets added to or taken off a comparable sale to account for how it differs from the subject. Every one needs its own support, because every one will be challenged on its own.
Matched pair analysis: Working out what a feature is worth by finding two otherwise similar sales that differ only in that feature. The cleanest support an adjustment can have, and rarely available exactly when you want it.
Gross living area: Finished living space above grade, measured to the outside of the building. Finished basements generally do not count towards it whatever the listing claimed, and that single point starts more arguments than any other.
Highest and best use: The most profitable use that is legally permissible and physically possible. For a house it is nearly always the current use; for land, or a site being badly under-used, often not.
Effective age: How old a building behaves rather than how old it is. A 1950s house that has been looked after can carry an effective age decades below what the deed would suggest.
Functional obsolescence: Value lost to the building itself — an awkward layout, a bedroom reachable only through another bedroom, a single bathroom serving four of them.
External obsolescence: Value lost to something beyond the property line and beyond the owner's control: a rail line, a commercial use next door, an employer leaving town.
Exposure time: How long the property would have had to sit on the market to sell at the concluded value. It looks backwards from the effective date; it is not a prediction of what will happen next.

New Jersey specifics

Terms carrying a particular local meaning — and between them, the source of most of the confusion these assignments generate.

Assessed value: The figure the municipality carries the property at on its own books. It is not a market value opinion, it was never meant to track one between revaluations, and the gap between the two is the first thing most callers want explained.
Certificate of occupancy: The municipality's confirmation that a building or a unit within it is lawful to occupy. A great many New Jersey towns require a continued CO on sale or on a change of tenancy, and where one exists it is real evidence of what is legally there. Two-to-four family
Legally nonconforming use: A use that was lawful when it began and would not be allowed under the zoning now in force. Common right through the older housing stock here, and it matters because it limits what could be put back after a fire or a collapse.
Transfer inheritance tax: New Jersey's inheritance tax, driven by who inherits rather than by how large the estate is. Spouses, children and grandchildren pay nothing; siblings and unrelated beneficiaries do. The separate New Jersey estate tax was repealed in 2018, and the two are constantly confused. Estate appraisals

What an appraisal is not

Four other documents that also finish with a number, and why none of them stands in for an appraisal.

CMA: A comparative market analysis, produced by a real estate licensee. A pricing opinion, normally free, and frequently everything you need in order to set an asking price. It is not developed under USPAP and carries no signed certification, which is why a court or a taxing authority gives it little weight once a value is genuinely in dispute. Full comparison
BPO: A broker price opinion — close cousin to the CMA, usually ordered by a lender for portfolio or default work, and often written from the kerb without anyone going inside.
AVM: An automated valuation model: the figure a property website shows you. Purely statistical, generated without a human being 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 done without a full interior inspection. It is a genuine appraisal under USPAP with the limited scope disclosed — and correspondingly weaker anywhere the value has to survive being examined.

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