Appraisal Glossary

Below are some terms associated with the business of appraising that are frequently used. For more indepth explanations, please visit the Quest Blog.

Appraisal is either the act of developing an opinion of value, or the opinion of value itself.

Appraisal report is any communication, written or oral, of an appraisal transmitted to the client or a party authorized by the client upon completion of an assignment. Most reports are written and most clients mandate written reports. There are three types of reports:

A Restricted Appraisal Report is an option that provides appraisers with a means of communicating their results in a format with less detail and explanation. A Restricted Appraisal Report includes a clear and conspicuous warning statement that the report may not contain supporting rationale for all of the opinions and conclusions set forth in the report. 
An Appraisal Report is an option that provides more extensive explanation and background. It must at least summarize the appraiser’s analyses and the rationale for the conclusions. The amount and level of detail required depends on the intended use and scope of work. It consists of a cover document, a body and an addendum: The Cover document is a required element and contains unique, appraisal-specific information found nowhere else in the appraisal report. The Body of the appraisal report is a required element of all appraisal reports and contains item specific information, ie. a catalog or inventory describing each item. The Addendum is a required element and contains supporting documentation for information found in the appraisal report’s Cover document and Body including, but not limited to, the appraiser’s qualifications, photographs, working bibliography, tests, and reports proving authenticity or provenance, etc. See a sample appraisal report.
A Verbal Report is shared orally, not accompanied by any paperwork.  The same degree of research and due diligence is completed, but the evidence and documentation is kept in a workfile.  It is not compiled and presented in a format that is physically shared with the client in the form of a written report.  If a written report is requested, it can be compiled by the information kept in the workfile. 

Approach to value is an acceptable method for measuring value or cost of property. There are three approaches: sales comparison, cost, and income.

Cost approach compares the item being appraised with the cost to replace (by purchase, production, or reproduction) the item with a new or comparable substitute. Income approach compares the income producing record of similar property and/or appliesa present value formula to calculate the present worth of income anticipated to be generated in the future through sale or lease. Sales comparison approach compares the subject property with similar items that have sold in the past within the market considered most common for the item.

Buyer’s cost is the cost a purchaser would most likely have to pay in order to purchase the
subject item

Comparable property is a property having qualities and characteristics sufficiently similar to the property in question that it warrants comparison for valuation purposes.

Depreciable personal property is property that decreases in value or price over time, which may be due to perceptions in the marketplace or the actual consumption/use of the item. Depreciation is a property’s loss in value for any reason, internal or external to the item.

Diminution of value (a.k.a. loss-on-value or loss-of-value) is the degree to which an item has lost worth because of damage and subsequent professional repair/restoration.

Distress (forced) liquidation market is any market circumstance where property is sold quickly, within a very restricted time frame, without the freedom to consider exposure orprice and, often, without regard to the most appropriate marketplace. Distress sales take place in markets that may or may not be the most appropriate (i.e. most lucrative) market. The property is sold immediately by a seller under compulsion toexchange property for cash.

Fair market value (FMV) is a value defined by a legal or regulatory jurisdiction and varies with individual jurisdictions. For federal uses in the U.S. such as estate and gift tax or charitable contributions, fair market value is the most probable price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, both having reasonable knowledge of all relevant facts, and with the sale being made to the public in the most relevant market taking into consideration the location of the property. In Canada (Canada Revenue Agency and CCPERB) it is defined as the highest price, expressed in terms of money, that the property would bring in an open and unrestricted market between a willing buyer and a willing seller who are knowledgeable, informed, and prudent, and who are acting independently of each other.

Forced liquidation value is the most probable price at which property would change hands if sold within a very short period of time without considering the marketplace.

Highest and best use is that reasonable and legal use of a property that will result in its greatest value. The principle of highest and best use recognizes the need to consider the item’s ultimate use as well as the most appropriate marketplace which, taken together, results in the highest value for the property under consideration.

Intangible property (intangible assets) are non-physical assets, including but not limited to franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities, and contracts; as distinguished from physical assets such as facilities and equipment.

Intended use is the use(s) of an appraiser’s reported appraisal or appraisal review assignment results, as identified by the appraiser based on communication with the client at the time of the assignment. It is the reason an appraisal is being conducted. It is what the client will do with the report. Intended user is the client or any other party identified, by name or type, as users of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment.

Irreplaceable property is that property for which a duplicate or suitable equivalent cannot be either purchased or reproduced. Examples include an artist’s original oil painting, or JFK’s humidor, or the Hope Diamond. While a similar item might be found, it can never be suitably equivalent as characteristics of provenance, antiquity or authorship cannot be duplicated in replacement property.

Limiting conditions are conditions that materially affect the appraisal process and, as a consequence, the value conclusion.

Liquidation value is a type of market value. There are two very different types of liquidation – forced liquidation value and orderly liquidation value.

Loss-on-value (a.k.a. loss-of-value or diminution of value) is the degree to which an item has lost worth because of damage and subsequent professional repair/restoration.

Market levels–primary, secondary and wholesale markets. The primary market is where an item appears for the first time, such as at a gallery or directly for sale by the artist; the secondary market is where a previously owned piece appears for resale, such as at an auction house, another gallery, or by other forms of consignment; the wholesale market is where a work is offered for sale to those who work in the trade, often at a significant discount.

Market value is the most probable amount of money a buyer would pay and a seller would receive for an item within an identified market. It is similar to fair market value except that the lack of compulsion to buy or sell is removed, i.e. the sale must be consummated, and theassumption of a sale within a specified time frame is added. Caution: In some jurisdictions market value and fair market value are used interchangeably.

Marketable cash value or net proceeds (a type of “value in exchange”) is the net proceeds (gross proceeds less expenses) of a sale. Expenses might include advertising, auctioneer or broker’s commission, transportation costs, photography costs, trash removal, etc.

Marketable non-investment property (examples include most personal property) is that saleable property which is held without the expectation of earning income. Has market and owner value.

Net proceeds (or marketable cash value) equals the gross proceeds from a sale less costs associated with the sale such as auctioneer’s commission, hauling, advertising, taxes, etc.

Net value (a type of “value in use”) is a term commonly used in equitable distribution proceedings (divorce, business dissolution, estate division) to indicate the market value of property less any encumbrances (such as liens or debt) or expected selling commissions or costs, which would serve to reduce the property’s market value.

Non-investment property is property owned without the anticipation of income.

Objective (appraisal) is the type of value or cost the appraiser is seeking based upon the intended use of the appraisal

Orderly liquidation market is the market in which property is regularly sold in an orderly and advertised fashion but for which time constraints apply. Examples are auction galleries, on-site auctions, and estate tag sales.

Orderly liquidation value is the most probable price for which an item would change hands between knowledgeable buyers and sellers if sold in an orderly manner, properly advertised, and allowing a reasonable amount of time to complete the transaction in an appropriate marketplace.

Original cost is the cost of acquisition to the current owner.

Parallel market is used when there are no specific comparables for an item. An appraiser looks at another category, artist, or market and makes relevant correlations between the two categories or marketplaces.

Personal property is a class of property that can include any asset other than real estate. The distinguishing factor is that personal property is movable; that is, it isn’t fixed permanently to one particular location. Tangible objects that are considered by the general public as being “personal,” are furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment.

Retail market is the market in which items are sold at retail, i.e. to the end consumer. Examples are antique shops, art galleries, jewelry stores, and department stores. Retail price is the price the ultimate consumer is asked to pay for an item in the retail market.

Retrospective appraisals provide a value conclusion as of an effective date, which is prior to the date of the report. A retrospective appraisal mentally goes back in time to the effective date and applies data as of that earlier date and not after.

Salvage value is the amount that can probably be obtained from a damaged item or for the components of a damaged item.

Scrap value is a kind of salvage value and is the amount that would probably be obtained for a property that was being broken up to obtain materials. It recognizes the intrinsic value of the materials comprising the original item, e.g. scrap steel in a wrecked car or the gold in damaged jewelry.

Walkthrough is an onsite visit. It is the first chance the appraiser has to see the items to be appraised and estimate the scope of the assignment. If the intended use of the appraisal is to determine what can and should be sold, this is when high and low value items are separated out.

CREDIT: The Core Course Manual, ISA, 2021.