51 Appraisal Management Terms You Need to Know

Appraisal Management Terms

When it comes to appraisal management and appraisal management companies, there are tons of terms you should know. However, trust us when we say that we understand: there’s only so much space in your brain, and with your own roles and responsibilities, how can you squeeze another inch of information in there? No need to worry. We’ve developed a list of the top 50 appraisal management terms you need to know. You’ll be able to refer to this glossary if ever you’re ever reading an appraisal or reviewing a review and find yourself thinking “what exactly does this mean?”. Bookmark it, print it, or simply make a mental note. Whatever you do, file it away as an A to Z resource you can always come back to and use again and again.

  1. Absorption: Sometimes referred to as the absorption rate, absorption is the amount of inventory or units of a specific commercial property type that becomes occupied during a time period in a particular market.
  2. Accumulated Cost Recovery: Total cost recovery deductions taken throughout the time a property is held.
  3. Add-on Factor: The ratio of rentable square feet to useable square feet.
  4. Add Value: Transaction management process related to a transaction manager’s planning, effort, and contact with key decision-makers and investors, along with contact with other professionals.
  5. Adjusted Basis: The original cost basis of a property plus capital improvements, minus total accumulated cost recovery deductions and partial sales taken during the holding period.
  6. Agglomeration Economies: Cost reductions or savings that come about from efficiency gains associated with the concentration or clustering of firms/producers or economic activities and the formation of a localized production network.
  7. Automated Valuation Model (AVM): A computer program that estimates a property’s value based on market, economic, and demographic factors.
  8. Balloon Payment: The final payment of the balance due on a partially amortized loan.
  9. Breakpoint: The sales threshold over which percentage rent is due.
  10. Broker Price Opinion (BPO): Estimate of the probable sales or listing price of the property provided by a real estate broker, sales agent, or sales person.
  11. Building Classifications: Building classifications refer to Class “A”, “B”, “C” and sometimes “D” properties. Ratings assigned are generally subjective.
  12. Cap Rate: Abbreviation for capitalization rate. Unleveraged initial yield on the investment expressed as the annual Net Operating Income divided by the property price or asking price.
  13. Capital Expenditures: Also called operating expenses. Property improvements that cannot be expensed as a current operating expenses for tax purposes.
  14. Central Place Theory: A location theory that accounts for the size, distribution, and organization of settlements, places, market areas, and establishments in a competitive and interdependent urban system, to explain differences in the locational tendencies and preferences of businesses as they seek to maximize market accessibility, sales, and profits.
  15. Commercial Mortgage Backed Securities: A type of bond commonly issued in security markets, and backed by mortgages on commercial properties.
  16. Common Area Maintenance (CAM): The additional rent charged to the tenant to maintain the common areas of the property.
  17. Confidence Range Method (95%): A statistical method of estimating a range of vacancy rates with a 95% confidence.
  18. Customer-spotting Approach: An approach to estimating the retail trade area and revenue potential for a given property based on the location of existing customers via point-of-sale information or customer surveys.
  19. Co-broker: When brokers partner to view and rent the property, and split the commission should their client end up leasing the property.
  20. Concessions: These are most often free rent, lease buyouts, moving allowances, or above-standard tenant improvement allowances.
  21. Desktop GIS: GIS software programs that support a wide variety of functions, queries, and mapping geared toward visual presentation and descriptive analysis of geo-coded data.
  22. Easement: The right of a non-owner to have control over a portion or all of the property.
  23. Effective Date of the Appraisal: Date that reflects the time period of the assignment results, generally the date of the inspection.
  24. Eminent Domain: The right of the federal government to obtain private land for public purposes.
  25. Escalation Clause: Used in long-term commercial leases to help landlords cover the increasing cost of property ownership year over year, an escalation clause increases the rent on an annual basis.
  26. Federally Regulated Institution: A national or state-chartered bank, bank holding company, federal savings, savings and loan association, or credit union.
  27. Federally Related Transaction: Any real estate related transaction in which a regulated institution uses an appraiser.
  28. Fee Simple: An unencumbered ownership right in a piece of property.
  29. FF&E: Movable furniture, fixtures or other equipment that are not permanently connected to the structure of a building.
  30. Going-Concern: Total value of a property plus the operational business.
  31. Gross lease: A property lease whereby the landlord pays for all property costs including utilities, taxes, and maintenance.
  32. HVCRE: A credit facility that, prior to conversion to permanent financing, finances or has financed the acquisition, development, or construction (ADC) of real property.
  33. Latent Defect: A fault in the property that was not revealed through inspection.
  34. Leasehold Interest: When a fee simple land-owner enters into an agreement or contract.
  35. Lease Fee: A landlord’s right of use of property and the right to lease to others
  36. Letter of Intent: An informal agreement between landlord and lessee showing their intent to move forward.
  37. Percentage Lease: A lease in which the costs are based on the percentage of the sales made at the property.
  38. Net Absorption: The net change in occupied space in a given market between the current period and the last period.
  39. Referral Fee: The fee paid from one broker or agent to another when a client is referred.
  40. Sales History and Pending Sales: All current agreements of sales or listings of the property as of the effective date of the appraisal along with all sales of the property three years prior to the effective date.
  41. SBA (Small Business Administration): The SBA has three loan programs for commercial real estate which are:
    1. 7 (a) Real Estate
    2. 504 Loan Program
    3. 7(a) Pari Passu
  42. Scope of Work: The type and extent of analysis of each appraisal assignment.
  43. Self-Contained Appraisal Report:  The most complete and detailed appraisal report.
  44. Summary Appraisal Report: Summarizes information that is significant to the appraisal assignment.
  45. Sublease Clause: The clause in a lease that states whether or not subleasing is allowed.
  46. REIT (Real Estate Investment Trust): A security that sells like stocks and invests in real estate directly either through properties or mortgages.
  47. Restricted Use Appraisal Report: The report that briefly states information necessary to provide an Estimate of Value.
  48. Tenant Improvements or Tenant Improvement Allowance (TI): Alterations or updates an owner makes to rental space as part of a lease in order to create a space that fits the needs of a particular tenant.
  49. Uniform Standards of Professional Appraisal Practice (USPAP): The minimum appraisal standards for federal transactions for all appraisal assignments.
  50. USDA: A mortgage loan offered to rural property owners by the Department of Agriculture.
  51. Work Letter: An agreement between a landlord and a tenant regarding all the issues related to the build-out (construction) of the interior of a space.