Commonly Relied Upon Definitions

Appraisal Report [1]

“Any communication, written or oral, of an appraisal or appraisal review that is transmitted to the client upon completion of an assignment.”

 The content of an appraisal report must be consistent with the needs and knowledge level of the intended users.

As Is Market Value [2]

The estimate of the market value of real property in its current physical conditions, use and zoning as of the appraisal date.

Fee Simple Estate [2]

“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 Interest [3]

Leased fee interest (leased fee estate) is defined as: “The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus reversionary right when the lease expires.”

 If the lease is at market rent, then the leased fee value and the fee simple value are considered equivalent; however, if the tenant pays more or less than market, the residual owned by the leased fee holder, plus the market value of the tenancy, may be more or less than the fee simple value. 

Leasehold Interest [4]

The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease. 

Fair Market Value [5]

“The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.” 

Market Rent [6]

“The most probable rent that a property should bring in a competitive and open market under all the conditions requisite to a fair lease transaction, the lessee and lessor each acting prudently and knowledgeably, and assuming the rent is not affected by undue stimulus. Implicit in this definition is the execution of a lease as of a specified date under conditions whereby:

·       Lessee and lessor are typically motivated;

·       Both parties are well informed or well advised, and acting in what they consider their best interests;

·       Payment is made in terms of cash or in terms of financial arrangement comparable thereto; and

·       The rent reflects specified terms and conditions, such as permitted uses, use restrictions, expense obligations, duration, concessions, rental adjustments and revaluations, renewal and purchase options, and tenant improvements (TIs).

Retrospective Value Opinion [7]

 “A value opinion effective as of a specified historical date.” 

Restricted Appraisal Report [8]

A written report prepared under Standards Rule 2-2(b), 8-2(b), or 10-2(b) of the Uniform Standards of Professional Appraisal Practice.  

Stabilized Occupancy [9]

The occupancy of a property that would be expected at a particular point in time, considering its relative competitive strength and supply and demand conditions at the time, and presuming it is priced at market rent and has had reasonable market exposure. A property is at stabilized occupancy when it is capturing its appropriate share of market demand.

[1] Uniform Standards of Professional Appraisal Practice (USPAP) 2016-2017 Ed., The Appraisal Foundation, Chicago

[2] The Appraisal of Real Estate, Fourteenth Edition, Chicago, The Appraisal Institute: 2013

[3] The Dictionary of Real Estate Appraisal, 6th Ed., The Appraisal Institute, Chicago: 2015

[4] Ibid.

[5] IRS Regulation Section 20.2031-1

[6] The Appraisal Institute

[7] Ibid.

[8] Uniform Standards of Professional Appraisal Practice (USPAP) 2016-2017 Ed., The Appraisal Foundation, Chicago

[9] Ibid.