Glossary Terms IAAO
Corner Influence
(1) the effect of location at, or proximity to, the intersection of 2 streets upon the value of a lot or parcel. (2) the increment of value resulting from such location or proximity; most often in commercial properties because of greater ease of entry and exit, accessibility to higher volume of traffic , and increased show-window and advertising space
Assessor
(1) the head of an assessment agency; sometimes used collectively to refer to all administrators of the assessment function. (2) the public officer or member of a public body whose duty it is to make the original assessment
Allocation Method
A method used to value land, in the absence of vacant land sales, by using a typical ratio of land to improvement value. Also called land ration method.
Ad Valorem Tax
A tax levied in proportion to the value of thing(s) being taxed. Exclusive of exemptions, use-value assessment provisions, and the like, the property tax is an ad valorem tax.
Functional Assessment
Assessments that by law or by practice have assessment ratios different from 1. Usually the assessment ratio is less than 1, and if assessment biases are present, different classes of property may have different functional ratios. Fractional assessments are often condemned as offering a way to obscure assessment biases
Real property
Consists of the interest, the Benefits, and right inherent in the ownership of land plus anything permanently attached to their land or legally defined immovable; the bundle of rights with which ownership of real estate is endowed. To the extent that "Real estate" commonly include the land and any permanent improvements, the two terms can be used to have the same meaning also call "realty"
Fee Simple
In land ownership, complete interest in a property, subject only to governmental powers such as eminent domain. Also fee simple absolute
Cost Approach
(1) One of the 3 approaches to value, the cost approach is based on the Principle of Substitution - that a rational, informed purchaser would pay no ore for a property than the cost of building an acceptable substitute with like utility, The cost approach seeks to determine the replacement cost of a new of an improvement less depreciation plus land value. (2) the method of estimating the value of property by (a) estimating the cost of construction base on replacement or reproduction cost new or trended historic cost (often adjusted by local multiplier); (b) subtracting depreciation; and (c) adding the estimated land value. The land value is most frequently determined by the sales comparison approach
Economic (External) Obsolescence
(1) a cause of depreciation that is loss in value as a result of impairment in utility and desirability caused by factors outside the properties boundaries. (2) Loss on value of a property (relative to the cost of replacing it with a property of equal utility) that stems from factors external to the property. Example: a buggy-whip factory , to the extent that it could not be used economically for anything else , suffered substantial economic obsolescence when automobiles replaced horse-drawn buggies.
Comparative Unit Method
(1) a method of praising land parcels in which an average or typical value os estimated for each stratum of land (2) a method of estimating replacement cost in which all the direct and indirect cost of a structure (except perhaps architect's fees) are aggregated and specified with reference to a unit of comparison such as square feet of ground floor area, or cubic content. Separate factors are commonly specified for different intervals of the unit of comparison and for different story heights, and separate schedules are commonly used for different building types and quality classes.
Arm's-Length Transaction
(1) a sale between a willing buyer and a willing seller that are unrelated and are not under duress, abnormal pressure, or due influences. (2) a sale between two unrelated parties, both seeking to maximize their positions from the transaction and possess reasonable knowledge of prevailing market conditions
Assessed Value
(1) a value set on real estate and personal property by a government as a basis for levying taxes. (2) the monetary amount for a property as officially entered on the assessment roll for purposes of computing the tax levy. Assessed values differ from the assessor's estimate of actual (market) value for 3 major reasons: 1) fractional assessment ratios Partial exemptions decisions by assessing officials to override market value. The process of gathering and interpreting economic data to provide information that can be used by policymakers to formulate tax policy
Economic Rent
(1) in appraisal, the annual rent that is justified for the property on the basis of study of comparable properties in the area; market rent. (2) In economics, the payment received by an owner of something being bought or rented in excess of the minimum amount for which he or she would have sold or rented it.
Competition
(1) the attempt by 2 or more buyers to sellers to buy or sell similar commodities in the same market. (2) Principle of value that states that when the amount of a property of a certain type offered for sale is large in relation to the demand, prices will fall; prices will rise when the opposite situation prevails.
Meridian
1) An imaginary line on the earth's surface running due north and south from which differences of longitude (or departures) and animates are reckoned. 2) A principal north-south line in the rectangular land survey system
Indirect Costs
1) Overhead costs 2) Costs incurred in construction away from the site. EX: fees, permits, insurance, loans
Geographic Informational System (GIS)
1) a database management system used to store, retrieve, manipulate, analyze and display spatial information. 2) one type of computerized mapping system capable of integrating spatial data (land information) and attribute data among different layers on a base map
Property
1) an aggregate of things or rights to things. These rights are protected by law. There are two basic types of property - real property - personal property 2) The legal interest of an owner in a parcel or thing.
Fixture
1) attachment improvements that can be real or personal. If attached to the realty in such a manner that it removal would damage the real property for the fixture, the fixture is realty. If the fixture is removable without damage, it is generally considered personal property. 2) an item of equipment that, because of the way it is used, the way that it is attached, or both, has become an integral part of a building or other improvement. A fixture, such as a bathtub, is classified as real property, but trade fixtures (fixtures used in the conduct of business) are classified as personal property.
Neighborhood
1) the environment of a subject property that has a direct and immediate effect on value 2) a geographic area (in which there are typically fewer than several thousand properties) defined for some useful purpose , such as to ensure for later multiple regression modeling that the properties are homogeneous and share important locational characteristics
Net Income
1) the income expected from property, after deduction of allowable expenses 2) Net annual income is the amount generated by a property after subtracting vacancy and collection loss, adding secondary income, and subtracting all expenses required to maintain the property for its intended use. The expense included management fees, reserves for replacement, maintenance, property taxes and insurance, but nit include debt service, reserves for building additions or income tax
Lien
1) the legal right to take or hold property for a debtor as payment or security for a debt. 2) Any legal hold or claim, whether created voluntary or by operation of law, which creditor has on all or specified portions of the property owned by a person indebted to him
Effective Tax Rate
1) the tax rate expressed as a percentage of market value; will be different form the normal tax rate when the assessment ratio is no equal to 1 2) the relationship between dollars of market value of a property. The rate may be calculated either by dividing tax by value or by multiplying a property's assessment level by it's normal tax rate
Property Tax Levy
1) the total amount of money to be raised from the property tax as set forth in the budget of a taxing jurisdiction. 2) loosely, by extension, the millage rate or the property tax bill set to an individual property owner
Age/Life Method
A method of estimating accrued depreciation founded on the premise that, in the aggregate, a neat mathematical function can be used to infer accused depreciation from the age of a property and its economic life. AKA: "straight line depreciation.
Quantity Survey Method
A method of estimating reproduction cost in which a complete itemization is made of all labor and materials cost by component and subcomponent and all indirect costs; these are added to obtain an estimate of the cost of a structure or a reasonable bid for a contractor to submit on a proposed project
Anticipated Use Method
A method used to appraise underdeveloped land. Expected improvements to the land are specified, and total development cost are estimated and subtracted from the projected selling price to give an estimate of the value of the undeveloped land.
Quarter Section
A subdivision of a section containing 160 acres more or less, described by referencing the center point in the section, that is, is north and south of the center.
Fractional Section
A subdivision of a township containing more or less than 640 acres of land. Typically, accounting for the overage for deficiency in acreage is done on the north and/or west side of a section, and fractional sections are found on the north and/ or westside of a township
Millage, Mill Rate
A tax rate expressed as mills per dollar. Example: a 2% tax rate is $2.00 per $100.00, $20.00 per $1000.00 or 20 mills per dollar
Date of Sale
AKA: date of transfer The date upon which the sale is agreed. This is considered to be the date of the deed, or other instrument of transfer, is signed. The date of recording can be used as a proxy if it is not unduly delayed as in a land contract.
4-3-2-1 Rule
An empirical rule that ascribes 40 percent of the value of a standard lot to the quartet of the lot fronting on the street, 30 percent to the next quarter, 20 percent to the third quarter, and 10 percent to the rear quarter. NOTE: lots with a depth greater than the standard lot cannot be valued in accordance with this rule as stated above. the rule is sometimes altered by omitting the word "standard". it thereby becomes applicable to extra deep lots but the procedure inconsistent results as applied to lots of varying depths.
Capitalization Rate
Any rate used to convert an estimate of future income to an estimate of market value; the ratio of net operating income to market value
Attribute
Characteristic of a property
Personal Property
Consists of every kind of property that is not real property; movable without damage to itself or the real estate ; subdivided into tangible and intangible. AKA: personality
IAAO
International Association of Assessing Officers
Long-Lived items
Items that are the basic structure of a building and are not usually replaced during economic life. Example: Foundation, roof structure, and framing
Functional Obsolescence
Loss in the value of a property resulting from changes in tastes, preferences, technical innovational, or market standards
Market Vale
Market value is the major focus of most real property appraisal assignment. Both economic and legal definitions of market value have been developed and refined. A current economic definition agreed upon buy agencies that regulate Federal Financial institutions in the United states is: the most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and the 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 passing of title from seller to buyer under conditions whereby; 1) the buyer and seller 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) payment is made in terms of cash in US dollars or in terms of financial agreements 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
Metes and Bounds
Measurements of angles and distances; a description of a parcel of land accomplished by beginning at a known reference point, proceeding to a point on the perimeter of the property being described , and then tracing the boundaries until one returns to the first point on the perimeter, usually a corner. The angels are described by references to points of the compass, and the distances are described in feet or chains; curves aww treated as arcs on a circle
Capitalization of Income Method
Method of estimating accused depreciation similar to the sales comparison approach except that estimated vales (appraisals) based on the income approach are used instead of comparable sales. Reliability depends on accurate data and appropriate methods.
Capitalization of Ground Rent
Method of estimating land value in the absence of comparable sales; applicable where there is an income stream; for example, to farmland and commercial land leased on a net basis
Abstraction Method
Method of land valuation in th absence of vacant land sales, whereby improvement values obtained from the cost model are subtracted from sales price of improved parcels to yield residual land value estimates. AKA: residual land technique
Adjustments
Modifications in the reported value of a variable, such as sales price. EX: adjustments can be used to estimate market values in the sales comparison approach by modifications for differences between comparable and subject properties. Note: Adjustments are applied to the characteristics of the comparable properties in a particular sequence that depends on the method of adjustment selected.
Range Line
One of a series of Survey lines running due North and South 6 mile intervals used for locating parcels of land under government survey. Contrast Township lines
Income Approach
One of the three approaches to value, based on the concept that current value is the present worth of future benefits to be derived through income production by an asset over the remainder of its economic life. The income approach use capitalization to convert the anticipated benefit of the ownership of property into an estimate of present value.
Intangible Personal Property
Property that has no physical existence beyond merely representational, nor any extrinsic value; includes right over tangible and personal property, but not right use and possession. Its value lies chiefly in what it represents. Examples include: corporate stock, bonds, money on deposit, goodwill , restriction on activities (for example, patents and trademarks), and franchises. Note: Thus, in taxation, the right evidenced by outstanding corporation stocks and bonds constitute intangible property of the security holders because they are claims against the assets ed and income received by corporations rather than by the stockholders and bondholders; interest in partnership, deeds and the like are not ordinarily considered intangible property for the purpose because they are owned by the same persons who own the assets and receive the income to which they are attached.
RCN
Replacement cost new or reproduction new cost
65/35 Rule
Rule states that the value of a triangular lot with its base on the facing street will be approximately 65% of that of a rectangular lot of the same frontage and depth. The value of the triangular lot with its apex on the facing street will be 35% of that of a rectangular lot of the same base and depth.
Depreciation, Curable
That part of depreciation that can be revised by correcting deferred maintenance and remodeling to relieve functional obsolescence
Consistent Use
The concept that land should not be valued on th basis of one use while the improvements are valued on the basis of another.
Historic Cost
The cost of an asset not adjusted for inflation since that date of purchase, as opposed to the current replacement or reproduction cost. Usually the basis for depreciation in accounting, which has a requirement that all information on financial statements be presented in terms of the item's original cost to the entity. AKA: Original Cost
Appraised Value
The estimate of the value of a property before application of any fractional assessment ratio, partial exemption, or other adjustment.
Reconciliation
The final step in the valuation process wherein consideration is given to the relative strengths and weaknesses of the three approaches to value, the nature of the property appraised, and the quantity and quality of available data in formation of an overall opinion of value (either a single point estimate or a range of value). AKA: correlation
Real estates
The physical parcel of land and all improvements permanently attached. Compare real property
Mass Appraisal
The process of valuing a group of properties as of a given date, using standard methods, employing common date, and allowing for statistical testing
Adjusted Sales Price
The sales price that results from adjustments made to the stated sales price to account for the effects of time , personal property, atypical financing, and the like.
Bundle of Rights
The six basic rights associated with the private ownership of property: RIGHT TO: *SLUGER Sell Lease or Rent Use Give away Enter or leave Refuse to do any of these
Change
The tendency of social and economic forces affecting supply and demand to alter over time, thus influencing the market value
Physical Deterioration
a cause of depreciation that is a loss in value due to wear and tear, and the forces of nature
Parcel Identifier
a code, usually numerical, representing a specific land parcel's legal description. The purpose of parcel identifiers is to permit reference to legal descriptions by using code of uniform and manageable size, thereby facilitating record-keeping and handling. AKA: Parcel identification number
Parcel
a contiguous area of land described in a single legal description or as one of a number of lots on a plat; separately owned , either publicly or privately; and capable of being separately conveyed
Legal Description
a delineation of dimensions, boundaries, and revenant attributes of real property parcel that serve to identify the parcel for all purposes of law. The description may be in words or codes, such as metes and bounds or coordinates. For a subdivided lot , the legal description would probably include lot and block numbers and subdivision name
Cost Manual
a guide, containing pictures, specifications of structures, and cost schedules, used to help classify construction quality and estimate the cost of replacing a structure.
Incurable
a part of depreciation for which it is not economical to correct the condition, and if corrected , the cost of correcting the condition exceeds the value added
Lot and Block Survey
a plat in which a larger parcel of land is subdivided into small units of the purpose of sale. Conveyances need to refer only to the lot, block, and plat book designation
Plat, Subdivision
a plat showing the location of a subdivision and its layout into lots, streets, alleys, and the like
Highest and Best Use
a principle of appraisal and assessment requiring that each property be appraised as though it were being put to it's most profitable use (highest possible present net worth), given probable legal, physical, and financial constraints. The principle entails first identifying the most appropriate market and , second, the most profitable is within that market. The concept is most commonly discussed in connection with underutilized land.
Public Land Survey System (PLSS)
a rectangular survey system established in the United States by the Land Ordinance of 1785. The basic survey unit is the six-square mile township. Township are located by base lines and meridians parallel to latitude and longitude lines; they are defined by range lines running parallel (north-south) to meridians and township lines running parallel (east-west) to base line.
Cadastral Map
a scale map displaying property ownership boundaries and showing the dimensions of each parcel with related information such as parcel identifier, survey lines, and easements. Annotations on recent sales prices and land value are sometimes added.
Neighborhood Analysis
a study of the revenant forces that influence property values within the boundaries of a homogeneous area
Base Line
a survey line running due east and west through the initial point of a principal meridian from which township lines are established by the government survey
Local Multiplier
an adjustment to replacement or reproduction cost new or historic cost, to reflect local costs
Cost Index
an index showing the variations in construction cost overtime ; sometimes, by extension, a set of similar numbers showing the relative costs of construction in different geographic areas
Balance (Principle of Balance)
as used in appraising is that maximum market value is reached when the four agents of production 1) land 2) labor 3) capital 4) management attain a state of equilibrium. When applied to a neighborhood, maximum market value is reached when the uses of land are perfectly complementary.
Direct Cost
cost incurred in construction on the site, referred to as hard cost. EX: materials, labor, supervision and utilities
Cost to Cure
estimated cost to correct or replace a component or defect within a property
Depreciation
loss in value of an object, relative to its replacement cost new, reproduction cost new, or original cost, whatever the cause of the loss in value. Depreciation is sometimes subdivided into 3 types: 1) physical deterioration (wear and tear) 2) functional obsolescence (suboptimal design in light of current technologies or tastes) 3) economic obsolescence (poor location or radially diminished demand for the product
Overall Age/ Life Method
method of estimating accused depreciation based on straight-line depreciation in which the building is assumed to depreciate by constant percentage each year over its economic life
Private Encumbrances
private hindrances that affect value and sale price such as easements, condominium controls, and deed or subdivision restrictions
Divided Rights
rights to property that have been divided among several owners in partnership, joint tenancy, tenancy in common and timeshare units.
Depreciations Schedules
tables used in mass appraisal show the typical loss in value at various ages of effective ages for different types of properties
Principle of Balance
the Principle of Balance as used in appraising is that maximum market value is reached when the four agents of production 1) land 2) labor 3) capital 4) management attain a state of equilibrium. When applied to a neighborhood, maximum market value is reached when the uses of land are perfectly complementary.
Principle of Subtraction
the Principle of Subtraction states that no buyer will pay more for a good than he or she would have to pay to acquire an acceptable substitute of equal utility in an equivalent amount of time
Functional Utility
the ability of improvements to satisfy market standards and demands
Price
the amount asked , offered, or paid for a property
Demand
the amount of a good or service that would be purchased at various prices during a given period
Principle of Anticipation
the appraisal principle that value depends on the expectation of benefits to be derived in the future
Assessment Level
the common or overall ratio of assessed value to the market value
Appraisal Date
the date of which a property's value is estimated
Cost
the money expended in obtaining an object or attaining an objective; generally used in appraisal to mean the expense, direct or indirect, of construction and improvement.
Economic Life
the period during which a given tangible asset , building, or other improvement property os expected to contribute (positively) to the value of the total property, that is its physical life
Principle of Conformity
the principle of conformity state that the value of a group of properties will rise to it's highest possible level in an area where architectural styles are reasonably homogenous and surrounding land uses are compatible with the use of the specified properties
Principle of Contribution
the principle of contribution requires an appraiser to measure the value of any improvement to a property by the amount it contributes to market value, not by its cost
Equalization
the process by which an appropriate governmental body attempts to ensure that all property under it's jurisdiction is assessed at the same assessment ratio or at the ratio required by law. Equalization may be undertaken at many different levels. Equalization among use classes (such as agricultural and industrial property ) may be undertaken at the local level, as may equalization among properties in a school district and a transportation district; equalization among counties is usually undertaken by the state to ensure that its aid payments are distributed fairly.
Depth Factor
the ratio of the estimated front-foot value of a lot of more or less than standard depth to the established front -foot value of a lot of standard depth
Nominal Tax Rate
the stated tax rate, which does not necessarily correspond to the effective tax rate
Assessment Date
the status date for tax purposes. Appraised value reflect the status of the property and any partially completed construction as of this date.
Effective Age
the typical age of a structure equivalent to the one in question with respect to its utility and condition, as of the appraisal date. Knowing the effective age of an old, rehabilitated structure or a building with substantial deferred maintenance is generally more important in establishing value than knowing the chronological age.
Observed Condition (Breakdown) Method
this divides depreciation into all its various components - curable physical deterioration, incurable short-lived-item physical deterioration, incurable basic structure (long-lived items) physical deterioration, curable functional obsolescence, incurable functional obsolescence, and economic (external) obsolescence- often for each major building component
