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ABANDONMENT
To discontinue use of real property. To disclaim or surrender
the premises, rents and fixtures thereon with no intention to reclaim the
real property.
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ABSOLUTE
FEE SIMPLE The highest form of ownership which includes the
ownership of the legal rights of the property, including, but not
limited to, the rights to control, use, possess, exclude, enjoy and the
powers to will, mortgage, lease or otherwise abandon the real property.
Fee, fee simple, and absolute fee simple are, in most cases, used
interchangeably.
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ABSTRACTION
PROCEDURE To derive a land value estimate when no viable land sales
are available within a given area as used within the cost approach. The
methodology utilized includes extracting
a land value estimate of a piece of real property which as been
improved, including a structure and fixtures thereon by estimating the
land value, then subtracting the cost of the improvements plus the total
accrued depreciation from the sales price. This procedure is not the most
preferred method of land value derivation. It is used, however, when land
sales are not readily available within a given area.
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ACCRETION
The expansion of soil or land onto real property through natural causes,
including wind, rain, lakes and streams depositing soil which becomes part of the
real property.
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ACCRUED
DEPRECIATION As used in the
Cost Approach—A collective loss in value due to physical
deterioration, outdated construction features, and economic, locational
and environmental variables in the market. The total accrued
depreciation is measured and subtracted from the estimated cost to
replace a new structure as of a specific effective date.
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ACRE
An area of land which contains 43,560 square feet, as found in the
rectangular survey system, or United States Government Survey System of
land description. One of 640 acres as found in one section of land.
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ACTUAL
RENT As used primarily in the
Income Approach – The money earned and collected in exchange for
the use of real property as of the effective date of the appraisal
report.
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AD
VALOREM TAXATION A
method of estimating the assessed value of real property for taxation
purposes. Ad Valorem is Latin for according to value. Tax assessors are
professional assessment officials for a governmental taxing entity. The
assessed value of real property and the market value will rarely be the
same. Tax assessors use appraisal theory to estimate assessed value, not
market value.
Also see Assessed Valuation
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ADJUSTMENT
A positive or negative modification in the appraisal valuation made to
compensate for a variable. Adjustments are applied to a comparable property to
offset or compensate for a differential. For example, adjustments are
made for trees, fireplaces, and pools. The net result of these
adjustments, when applied to the comparable, will result in a net value
indication. Also see Paired-Sales
Extraction Procedure
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ADVERSE
POSSESSION A malicious
method of acquiring real property rights or the title to real property
from another through unauthorized, hostile or prolonged use. Adverse
possession comes from Squatters’ Rights. Adverse possession can be
difficult to prove. The statutory time periods are three, five, ten and
twenty-five years.
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AFTER
TAX CASH FLOW As used in the
Income Approach --
As used within an operating income statement, this calculation
shows the remaining net income after expenditures for debt service, lost
revenues and other expenses.
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AIR
RIGHTS Encompassed within the definition of land, real estate and
real property. Air rights include the rights to control and occupy the
air space above the surface to real property, extending “upwards into
the heavens.” Legal topics concerning air rights include the use of
sunlight rights, solar power, view amenities and the purchase of blocks
of air. One common form of air right ownership includes condominium
ownership.
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ALLOCATION
PROCEDURE See Abstraction
Procedure
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ALLUVIUM
The acquisition and
gaining of soil as a result of natural water course fluctuations and
change. Also see Accretion and
Reliction
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AMENITIES
A set of features that enhance physical or material pleasures
to an owner of real property. For
example, lake views, design variations, property conditions and property
locations. Amenities fluctuate in value according to the user of the
amenity.
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AMORTIZATION
OF A DEBT A direct reduction method of financing and repayment of a
mortgage debt (deeds of trusts in Texas ) in equal installments of both
principal and interest over a prescribed period of time. For example,
the monthly payment of a $10,000.00 loan over ten years with an interest
rate of ten percent is $152.57. During the ten-year period, a total of
$18,311.60 is paid. The interest paid over the ten-year term is
$8,311.60, which is 83.12 percent of the original amount borrowed.
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ANCHOR
TENANT Of a series of tenants, the largest one which generates the
highest portion of consumer traffic.
Anchor tenants typically are the first tenants of a strip center,
regional or super regional mall. Their association with the development
creates the desire for other tenants to be nearby. Major retailers will
typically serve as anchors in a regional mall, whereas grocery stores
will typically serve as anchors for a neighborhood strip center. Also
see Regional Mall
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ANTICIPATION,
PRINCIPLE OF An appraisal principle which states that buyer and
seller anticipate an increase in value when buying real property.
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ANNUAL
PERCENTAGE RATE -- APR The rate of interest charged to borrowers for
the use of money. The “Truth in Lending Act” , as part of Federal
Reserve Regulation Two, requires commercial banks to disclose the actual
annual percentage rate being charged on a loan. For example, a buyer is
seeking financing of a $200,000 home and has agreed to make a down
payment of $50,000. The buyer and lender have agreed to finance $150,000
at 12 percent interest for 30 years. The buyer purchases four points
with a one-point origination fee, totaling five points. Each point
represents one percent of the loan amount. To calculate the APR, take
the loan amount of $150,000 and subtract the discount points totaling
$7,500 from the loan amount. Then, $142,500 becomes the present value
with a payment of $1,542.92. When amortized over 30 years, the APR is
actually 12.69 percent including the cost of financing.
$150,000 at 12 percent for 30 years equals $1,542.92
$150,000 minus $7,500 (points) at 30 years equals 12.69 percent.
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APPRAISAL
FOUNDATION An
organization located in Washington, D.C., with authority from the
appraisal industry to regulate the activities of the profession. The
foundation was granted its authority from the Financial Institutions
Reform, Recovery and Enforcement Act (FIRREA) passed in 1989, and
implements the Uniform Standards of Professional Appraisal Practice
(USPAP). The rules and standards developed by USPAP formulate the
minimum standards and qualifications of professional appraisers as set
by its nine-member appraisal organization.
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APPRAISAL
REPORT The formal
impartial reporting of an estimated conclusion of value. An appraisal
report can be a letter, a standard form or a narrative report. Most
residential appraisal reports are a form report.
The length of a residential form report can range between 10-40
pages.
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APPRAISER
An unbiased, disinterested third party who draws conclusions
and reports an estimate of value based on the interpretation of value of
buyer and sellers in the marketplace.
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APPRECIATION
Applied in all three
approaches to the Appraisal Process -- It is the result of real property gaining or ascending in
value. Appreciation is based on multiple variables including time,
inflation, location, supply, demand, money supply and numerous other
economic and market variables.
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APPURTENANCE
A right, privilege or physical possession of a tangible or
intangible item that passes with and is inherent to the title of real
property. Types of
appurtenances include easements by necessity, by prescription or in
gross. For example, the common elements within a condominium regime
granting an owner, once receiving title, to use the recreational
facilities within the common grounds.
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AREA
As used in mathematics, the surface of a building or lot.
This is used to determine the number of square inches, feet meters or
yards of a surface. See the illustration below.
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ARMS
LENGTH TRANSACTION A
fair market exchange, in an open competitive market, between a knowledgeable buyer and seller, neither of which are
influenced by duress or harmful action. Both parties are acting in their
own best interest. Both parties gain and lose something of value.
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AS
IS To provide an
interpretation of value based on the current condition of the real
property, without regard to the potential future marketability.
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AS
REPAIRED An
interpretation of value based on the projected completion of specific
improvements as of a predetermined date.
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ASSEMBLAGE
The process of merging two or more tracts of land into one
large tract which may increase the overall marketability and value of
the property. For instance, two separate on-acre tracts have a value of
$5,000 each. When combined into a two-acre tract, the perceived market
value becomes $12,000, a gain of $2,000 after being combined. This
increased value is referred to as plottage or plottage value.
Conversely, assemblage can create a loss in value. The addition or
subtraction of value when combining two or more tracts is dependent on
the uses of similar sales in the same area.
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ASSESSED
VALUE Assessed value is
that estimate of value determined by a county tax authority for the
purpose of calculating the annual taxes on real property.
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ATCF
See
After Tax Cash Flow
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| AVULSION
The forcible removal, through natural causes, of soil or land
which alter real property boundaries. Avulsion can occur through changes
in the path of a waterway or by violent acts of nature such as
earthquakes. See Accretion |