Appraisal Buzz Lingo

There is specific terminology for each profession and sometimes it can feel like a completely different language. Just learning the correct vocabulary is a job in itself. For many appraisers who are training or just entering the field, it can be very overwhelming to catch onto all the lingo.

If appraiser terminology has you walking away even more confused than you started, read on! We put together some keywords to help guide trainees, loan officers, clients or real estate agents through the process.

Subject Property: Let’s keep it plain and simple, this is the property being appraised.

Comps: Short for comparables, in which the property is being compared to during the appraisal. It can be a property similar to the subject property and is a property the buyer would consider purchasing if the subject property is not available.

Adjustments: The calculation made to compare and recognize the difference in features and amenities to the subject and comparables. Say what?! Let’s break this down. It basically means, if the comp has a feature the buyer would pay more for a negative adjustment is made on the scale. The same goes for the comp having a not so positive feature, a positive feature would be adjusted.

Assignment Rules: The conclusion or opinions of the appraiser developed from the assignment.

Competitive Market Area: The area in which comparables can be pulled from. Possibly a nearby neighborhood or areas in the same school district.

Commercial Property Appraiser vs Residential Property Appraiser: Commercial Property includes office buildings, hotels, banks, retail stores etc. Residential Property Appraiser only accepts assignments on residential homes.

Desk Review vs Desktop Appraisal: A Desk Review does not include the inspection of the subject property while a Desktop Appraisal does not include an inspection of the subject property OR comparables.

Gross Living Area: This includes the above ground heated and cooled area of the home. Finished basements or other areas that go beyond the main living area are not included. A detached garage or screened in back porch do not count.

Effective Age: Is the age of the home as it appears to be. “As it appears to be” are the key words here. The house may have been built 40-50 years ago but due to updates such as a new roof, the home can be considered 10 years younger.

Depreciation: A loss in property value from any cause. This can be caused by physical aging like the home needing new HVAC system or home repairs like new siding.

Functional Depreciation: Again, the property is losing value but this time it is not because of physical aging or home repairs. Functional Depreciation is a cause due to the home being outdated resulting in it being less desirable.

External Depreciation: There is an outside factor causing the home to lose value. This source is typically off of the property like a busy road or commercial buildings surrounding the property.

Sale Price to List Price Ratio: It is what it says it is. It compares the final price to the initial asking price.

Now let’s break down the 3 different types of sales comparison approach. Each approach will help determine the value of the appraisal. It is the job of the appraiser to determine which approach they feel is the best fit for the assignment.

Sales Comparison Approach: Compares recently sold properties to the subject property. This method will best help develop the value based on the opinion of the appraiser.

Cost Approach: The 2^ndsales comparison approach takes into consideration depreciation factors, any construction costs, and includes the current market value of the land that the subject property is located on.

Income Approach: The final approach determines the income potential of the property. This approach is specifically used towards rental properties.  

The list can go on and on with “need to know” terms but finding the right starting point for you is fundamental during the learning process. Remember, everyone has to start somewhere.  

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