Market Value
The most probable price which a specified interest in real property is likely to bring under all of the following conditions:
1. Consummation of a sale occurs as of a specified date
2. An open and competitive market exists for the property interest appraised
3. The buyer and seller are each acting prudently and knowledgeably
4. The price is not affected by undue stimulus
5. The buyer and seller are typically motivated
6. Both parties are acting in what they consider to be their best interest
7. Marketing efforts were adequate and a reasonable time was allowed for exposure in the open market
8. Payment was made in cash in U.S. dollars or in terms of financial arrangements comparable thereto
9. 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
Market Value Definition Per Financial Institution Reform
Recovery and Enforcement Act of 1989 FIRREA):
1. Buyer and seller are typically motivated
2. Both parties are well informed or well advised, and acting in what they consider their own best interests
3. A reasonable time is allowed for exposure in the open market
4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto
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
Ground Lease
A lease that grants the right to use and occupy land. Improvements made by the ground lessee typically revert to the ground lessor. The “Subject to Completion” value estimate is contingent upon the subject proposed improvements being completed in a workmanlike manner, in conformity with the building plans and specifications provided to the appraiser, and in compliance with all applicable local, state, and federal regulations. Any substantial deviation from the plans and specifications provided to the appraiser will render the value conclusions contained herein void. The appraiser reserves the right to modify the value conclusions contained herein if the construction deviates from the plans and specifications provided for review.
Appraisal
The act or process of developing an opinion of value; an opinion of value. Of or pertaining to appraising and related functions such as appraisal practice or appraisal services. The subject market area has been negatively impacted by the current local, national and global economic crisis. The appraisers cannot predict the length or depth of the impact of these crises. Therefore, the reader is reminded that the value conclusion contained herein is as of the specified date of value.
Personal Property
Identifiable portable and tangible objects which are considered by the general public as being “personal”, e.g., machinery, equipment, furnishings, art work, antiques, gems, jewelry and collectibles.
Stabilized Occupancy
Occupancy at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property; the optimum range of long-term occupancy which an income producing real estate project is expected to achieve under competent management after exposure for leasing in the open market for a reasonable period of time at terms and conditions comparable to competitive offerings.
Fee Simple Estate
The real estate interest appraised is the fee simple estate as of the effective date of the appraisal.
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.
Leased Fee Estate
An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease.
Leasehold Estate
The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy fora stated term under certain conditions.
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:
1. It is required to properly develop credible opinions and conclusions
2. The appraiser has a reasonable basis for the extraordinary assumption
3. Use of the extraordinary assumption results in a credible analysis
4. The appraiser complies with the disclosure requirements set for in USPAP for extraordinary assumptions
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:
1. Use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison;
2. Use of the hypothetical condition results in a credible analysis
3. The appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions
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.
Condominium
A multi-unit structure or property in which persons hold fee simple title to individual units and an undivided interest in common areas.
“Prospective” Market Value
A forecast of the value expected as of a specified future date.
Entrepreneurial Profit
A market-derived figure that represents the amount an entrepreneur expects to receive for his or her contribution to a project; the difference between the total cost of a property (cost of development) and its market value (property value after completion), which represents the entrepreneur’s compensation for the risk and expertise associated with development. In the Cost Approach, expected profit is reflected as entrepreneurial profit.
Entrepreneurial Profit
1. A market-derived figure that represents the amount an entrepreneur expects to receive for his or her contribution to a project; the difference between the total cost of a property (cost of development) and its market value (property value after completion), which represents the entrepreneur’s compensation for the risk and expertise associated with development. In the cost approach, expected profit is reflected as entrepreneurial profit.
2. In economics, the actual return on successful management practices, often identified with coordination, the fourth factor of production following land, labor, and capital; also called entrepreneurial return or entrepreneurial reward.
Partial Interest
Divided or undivided rights in real estate that represent less than the whole. The legal separation of undivided partial interests such as co-ownership in real estate. This division of real property into separately owned parcels according to the owners’ proportionate shares, which is usually pursuant to a judicial decree, severs the unity of possession, but does not create or transfer a new title or interest in property.
Present Value
The value of a future payment or series of future payments discounted to the current date or to time period zero. Prospective Value “Upon Completion of Construction”. The prospective future value of a property on the date that construction is completed, based upon market conditions forecast to exist as of the completion date. The prospective value “Upon Completion of Construction”, in the context of a proposed development to be 100% owner-user occupied, assumes completion to a “move-in” condition (i.e., tenant improvements are finished) and stabilized occupancy (owner user) has occurred.
Fair Value
The cash price that might reasonable be anticipated in the current sale under all condition requisite to a fair sail. A fair sale means that buyer and seller are each acting prudently, knowledgeably, and under no necessity to buy or sell – i.e., other than in a forced or liquidation sale. The appraiser should estimate the cash price that might be received upon exposure to open market for a reasonable time, considering the property type and local market condition. When a current sale is unlikely – i.e., when it is unlikely that the sale can be completed within 12 months – the appraiser must discount all cash flows generated by the property to obtain the estimate of fair value. These cash flows include, but are not limited to, those arising from ownership, development, operation, and sale of the property. The discount applied shall reflect the appraiser’s judgment of what a prudent, knowledgeable purchaser under no necessity to buy would be willing to pay to purchase the property in a current sale.
