rightAppraiser jargon

Have you heard an appraiser use any of these terms? Did you just hear one of our appraisers use it and you came here to figure out what it meant? We don't mean to speak a foreign language, but any profession has its jargon. What res ipsa loquitur is to a lawyer and triple witching is to day traders, external obsolescence is to appraisers. Here are some examples of common appraiser jargon and their meanings:

 

 

Subject: The property being appraised is the subject of the report and referred to as the "Subject". 

 

Adjustment:  When comparable properties have been identified, the appraiser makes adjustments to the Sales Price of each of the comparables to bring them into equivalency with the subject property, accounting for differences in location, construction quality, living area, acreage, frontage, amenities and the like.  This is where the professional expertise of an appraiser is most valuable.

 

Chattel:  Personal property that may be on the subject property but which does not figure into the opinion of value in the real property appraisal report (unless requested otherwise by the client).

 

Comparable or "comp”:  Properties like the subject property nearby which have sold recently, used as a basis to determine the fair market value of the subject property. 

 

Substitution or Theory of Substitution: Ideally the comp should meet this goal. The theory is the subject and the comparables would attract the same typical buyer. If the subject is a home with 4 bedrooms and 2 baths containing 2,500 square feet of living space on 5 acres it would not, likely, attract the same buyer as a home with 2 bedrooms, 1 bath, containing 800 square feet on a city lot. The typical buyer would not be likely to "substitute" one home for the other in their housing search. These example homes would be considered in different buyer pools. An easy non-real estate example would be; If the grocery store offers Pepsi-Cola for $9.00 a case and Coca-Cola for $5.00 a case the typical buyer may be willing to substitute the Coke over the Pepsi. However they would not be considered likely to "substitute" the Pepsi for a bag of tomatoes.

 

Buyer Pool: Essentially, as described above.

 

Drive-by: This nick name is very misleading, in our humble opinion. It seems to indicate the appraiser "drives by" on his way to the grocery to pick up a loaf of bread. Often this type of report is more difficult to complete than the standard "full" report (commonly referred to as the "1004") due to the limited knowledge the appraiser possesses concerning the subject property. This is an appraisal assignment that is limited to an exterior-only examination of the subject property to make a determination that the property is actually there and report obvious defects or damage visible from the outside (street viewing). Generally it will be "assumed" the interior is in similar repair or disrepair as the exterior. Fannie Mae's and Freddie Mac's form number are the same for this type of appraisal; 2055. So you may hear this referred to as a "drive by" or as a "2055".

Since the "1004" and "2055" demand similar data input and look very similar to each other toady much information required for completion of the "2055" must be gained from other sources. Public records, current or former listings of the subject in the local MLS, the appraiser's file (if the appraiser has performed a prior "full" report) are the more common sources. When information is limited the appraiser must use personal judgment. This type of report can contain incorrect information and, therefore, incorrect values may be produced. For example; The Assessor indicates the subject is on a full crawl space, no MLS data or other reliable source is found to signify otherwise. Later it is learned the subject has a full, finished basement. The Assessor's records, in this example, lead to an inaccurate conclusion. If the item in question cannot be verified by, what the appraiser believes to be a reliable source, the appraiser must see the amenity or discrepancy to allow its consideration in the report. Most appraisers will not change the appraisal report based on a telephone call from the homeowner saying "Hey, I have a full finished basement".

Fair market value:  The appraiser's opinion of value as written in his or her appraisal report should reflect the fair market value of the property -- what a willing buyer would pay a willing seller in an arm's-length transaction.

 

GLA:  "Gross Living Area," the sum of all above grade floor space, including stairways and closet space.  GLA is often determined using exterior wall measurements.

 

Latent defects:  A defect on the property that is not readily apparent but which impact the fair market value.  Structural damage or termite infestation might be examples.

 

MLS:  A Multiple Listing Service is a proprietary listing of all properties on the market in a given area and their listing prices, as well as a record of all recent closed sales and their sales prices.  Created by and used primary by real estate agents, many appraisers pay for access to these databases to aid in comparable selection and adjustment research.

 

Obsolescence:  The value of assets diminishes as their capabilities degrade or more desirable alternatives are developed.  Functional obsolescence is the presence or absence of a feature which renders the property undesirable.  Obsolescence can also occur because the surrounding area changes, making a feature of the property less desirable.

 

Useful life:  The time during which a property can provide benefits to its owner.

 

URAR: Short for Uniform Residential Appraisal Report. This is also referred to as the "1004". (Fannie Mae form 1004 and Freddie Mac form 70). This is the form most lenders require when they need a "full" appraisal (that is, with walk-through interior inspection).

 

USPAP: Short for Uniform Standards of Professional Appraisal Practice, USPAP promotes standards and professionalism in appraisal practice, and is often enacted into law in a state.  It is promulgated by the Appraisal Foundation, a non-governmental entity chartered by Congress to, among other things, maintain appraisal standards.

 

Walk-through: An inspection that includes a visit to each part of the interior of the house used in estimating value. 

 

Riparian Rights: This commonly refers to water rights. If a property is adjacent to a lake, river or other body of water Riparian Rights (use, duties, allocations etc) comes into play. This appraisal firm is not a law firm. Such rights and responsibilities can and will vary by jurisdiction. If Riparian Rights applies in your situation it is strongly advised you seek the advise of an attorney familiar with your area regarding your scenario.

  

Fannie and Freddie: These terms have been in the news lately but who are these people. Well, they are not people's names at all.  "Fannie Mae" is short for Federal National Mortgage Association. The nickname was born from the initials (acronym) "FNMA" which looks like it should read Fannie Mae. You may also see Fannie referenced in print as FNMA. "Freddie Mac" is the nickname for Federal Home Loan Mortgage Corp. The name "Freddie Mac" is the product of the imperfect acronym FHLMC.

 

Both Fannie and Freddie corporation's purpose is to purchase and securitize mortgages in order to ensure that funds are consistently available to the institutions that lend money to home buyers. FNMA (Fannie) was signed into existence by President Franklin D Roosevelt in 1938. FHLMC (Freddie) arrived in 1970 via the signature of President Richard M Nixon.

 

These are a few of the more common terms or phrases you may hear or see. If you have others, not listed here, give us a call and we will happy to define them. Have a good one? We may add it to this list. 

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