Glossary of Real Estate Terms

January 18, 2013


Terms marked * are from The Dictionary of Real Estate Appraisal, Fifth Edition, 2010, Appraisal Institute.  Others are as stated, or if not stated; they are by James Real Estate Services, Inc.  Not all terms are used in all assignments.

Actual Age*

The number of years that have elapsed since construction of an improvement was completed; also called historical or chronological age.

Actual Value

Actual value is used by assessors in Colorado and “…shall be determined under general laws, which shall prescribe such methods and regulations as shall secure just and equalized valuations for assessment of all real and personal property…” (C.R.S. Section 39-1-101) and generally means market value (Colorado & Utah Coal Co. v. Rorex, 149 Colo. 502 369 P.2d, 799 (1962) determined as of January 1st of a “base year” specified by statute and all events after that date are disregarded (C.R.S. Section 39-1-104(9)(a) and (10.1)(a) and 105) except “unusual conditions”.  Unusual conditions include: installation of on site improvements, addition to or remodeling of a structure, a change of use of the land, the creation of a condominium ownership, any new regulations restricting or increasing use of the land, any detrimental acts of nature and any damage due to accident, vandalism, fire or explosion (Martin v. Board of Assessment Appeals, 707 P.2d 348 (1985)).  Generally purely economic events, e.g. changes in market conditions, are not considered unusual conditions.  All three approaches must be considered (C.R.S. Section 39-1-101) except for residential properties which are confined to the cost and market (sales) approaches (C.R.S. Section 39-1-103(5)(a).

Aggregate Value

The sum of the individual values of two or more physically or legally distinct portions of a real property without discount for market absorption time or bulk purchase.  See Bulk Value.

Bulk Value

The combined value to a single purchaser of two or more physically or legally distinct portions of a real property with appropriate discount for bulk purchase or market absorption of the separate portions.  See Aggregate Value.

Business Enterprise Value (BEV)*

The value contribution of the total intangible assets of a continuing business enterprise such as marketing

and management skill, an assembled work force, working capital, trade names, franchises, patents,

trademarks, contracts, leases, customer vase, and operating agreements.

Cash Equivalency

When financing with more favorable than market terms was provided to  the buyer in any transaction and is found to have affected the sale price, and when confirmation of the transaction does not reveal a specific cash equivalence adjustment, the sale price is adjusted to a cash equivalent price based on market discounts and market yield requirements for mortgage note purchases and/or an economic model that attempts to simulate buyer and seller behavior. The model is based in part on estimates.  The appropriate adjustment is calculated by taking the present value of the debt service difference between market and actual financing terms.  The market interest rate used in this calculation is for the same loan‑to‑price ratio and other terms as the actual financing and the discount rate used is the market interest rate.  The present value is taken over the expected holding period for the investment which may be shorter than the repayment period of the actual loan as adjusted by expectations of market interest rate changes and the holding period of the buyer.


In condemnation, the loss in value to the remainder in a partial taking of a property.  Generally, the

difference between the value of the whole property before the taking and the value of the remainder after

the taking is the measure of the value of the part taken and the damages to the remainder.  Note that the

different regions of the country and different courts may use terms such as consequential damages and

severance damages differently.

The Colorado Jury Instructions-Civil 4th Chapter; Eminent Domain (Condemnation) Section 36:4 definition is:

Any damages or benefits are to be measured by the effects the acquisition of, and the expected uses of, the

property actually taken has on the reasonable market value of the residue.  Any damages are to be

measured by the decrease, if any, in the reasonable market value of the residue, that is, the difference

between the reasonable market value of the residue before the property actually taken is acquired and the

reasonable market value of the residue after the property actually taken has been acquired.  Any damages

that may result to the residue from what is expected to be done on land other than the land actually taken

from the respondent and any damages to the residue which are shared in common with the community at

large are not to be considered.  Similarly, any benefits to the residue are to be measured by the increase, if

any, in the reasonable market value of the residue due to the (construction) (improvement) of the (insert

brief description of the proposed improvement).  For anything to constitute a specific benefit, however, it

must result directly in a benefit to the residue and be peculiar to it.  Any benefits which may result to the

residue but which are shared in common with the community at large are not to be considered.  Nothing

should be considered as a factor of either damages or benefit unless you find that it increases or decreases

the reasonable market value of the residue.  Any finding of damages or benefits to the residue shall not

affect your determination of the value of the property actually taken. You are to determine any damages or

benefits as separate, independent items.  You should not attempt to balance the two.  Any adjustment or

balancing must be done by the court.

As stated in La Plata Electric Association v. Cummins 782 P.2d 696,700 (Colo. 1986): “[A] property owner should get compensated for all damages that are material, necessary and reasonable result of the taking.”  Generally increased circuity of access to or from a property is not considered compensable; however, substantial impairment or elimination of access to or from the adjoining road without alternative means of access is.  The damage generally must result from the condemnor’s use of the property taken from the owner, not property taken from another owner, even if for the same project.

Depreciation *

1.       In appraising, a loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date.

2.       In accounting, an allowance made against the loss in value of an asset for a defined purpose and computed using a specified method.

Economic Life*

The period over which improvements to real property contribute to property value.

Effective Age*

The age of property that is based on the amount of observed deterioration and obsolescence it has sustained, which may be different from its chronological age.

Exposure Time*

1.       The time a property remains on the market.

2.       The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive and open market.

External Obsolescence *

An element of depreciation; a diminution in value caused by negative externalities and generally incurable on the part of the owner, landlord, or tenant.

Extraordinary Assumption

An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.

Source:  Uniform Standards of Professional Appraisal Practice

Fair Market Value

The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.

Source:  US Internal Revenue Service, Revenue Ruling 59-60

Fair Market Value

The hypothetical price that a willing buyer and seller agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Source: US Department of Housing and Urban Development, Housing Glossary

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Source:  Financial Accounting Standards Board, Statement of Financial Accounting Standard (SFAS) 157: Fair Value Measurements


An indication that a project has a reasonable likelihood of satisfying explicit objectives.


Fee Simple Estate*

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.

Fractional Interest

See Partial Interest


Functional Obsolescence *

The impairment of functional capacity of a property according to market tastes and standards.

Functional Obsolescence – Curable*

An element of depreciation; a curable defect caused by a flaw in the structure, materials, or design, which can be practically and economically corrected.

Functional Obsolescence – Incurable*

An element of depreciation; a defect caused by a deficiency or superadequacy in the structure, materials, or design that cannot be practically or economically corrected.

Functional Utility*

The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms.


General Benefits*

In eminent domain valuation, the benefits that accrue to the community at large as a result of the new public work and the increased general prosperity that accompanies development.


Going‑In Capitalization Rate*

The overall capitalization rate obtained by dividing a property’s net operating income for the first year after purchase by the present value of the property.


Growth Rate

This term is the rate at which income and expenses are forecast to increase in a discounted cash flow analysis.  Projected inflation tends to be the primary influence on expense growth rates whereas both inflation and market rent trends tend to affect market rent growth rates.

Highest and Best Use*

The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. Alternatively, the probable use of land or improved property-specific with respect to the user and timing of the use-that is adequately supported and results in the highest present value.

The concept of highest and best use focuses on profit maximization as a determining factor in the development and/or use of a real property.  In fact, a property’s use tends to be determined by conflict resolution among developers, lenders, tenants, government and interest groups concerning economic as well as social feasibility.  Thus, the most probable use of a real property may be different from its highest and best use.  In estimating the highest and best use of the subject, then, some consideration is given to factors other than those outlined in the definition of highest and best use that may affect the eventual actual use of a property.

Hypothetical Condition

That which is contrary to what exists, but is supposed for the purpose of analysis.

Source:  Uniform Standards of Professional Appraisal Practice


Imputed Capitalization Rate

An imputed capitalization rate is the rate, which results from dividing stabilized net operating income as of the date of value by the net present value of the real property as calculated in discounted cash flow analysis.  An imputed capitalization rate can be calculated also by using the projected first year operating income.  To the extent these two net incomes differ due to vacancy, lease terms, anticipated renovation cost or other factors in the real estate, and market rent trends the resulting imputed capitalization rates also may differ.



An erosion of the purchasing power of currency characterized by price escalation and an increase in the volume of money, i.e. the proliferation of monetary units and consequent decline in the value of each unit.

Insurable Value*

A type of value for insurance purposes.

Investment Value*

The specific value of a property interest to a particular investor or class of investors based on the investor’s specific requirements.  Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market.

Just Compensation*

In condemnation, the amount of loss for which a property owner is compensated when his or her property is taken.  Just compensation should put the owner in as good a position as he or she would be if the property had not been taken.


Larger Parcel*

In governmental land acquisitions, the tract or tracts of land that are under the beneficial control of a single individual or entity and have the same, or an integrated, highest and best use.  Elements for consideration by the appraiser in making a determination in this regard are contiguity, or proximity, as it bears on the highest and best use of the property, unity of ownership, and unity of highest and best use.  In most states, unity of ownership, contiguity, and unity of use are the three conditions that establish the larger parcel for the consideration of severance damages. In federal and some state cases, however, continuity is sometimes subordinated to unitary use.

Leased Fee Interest (Estate)*

A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual land-lord-tenant relationship.


Leased Leasehold Interest

The “sandwich” position of the lessee in one lease who in turn subleases to another party.


Leasehold Interest *

The tenant’s possessory interest created by a lease.



1.       For real property, a personal, unassignable, and typically revocable privilege or permit to perform some activity on the land of another without obtaining an interest in the property.

2.       A formal agreement for a lawful source that allows a business or profession to be conducted, e.g., a franchise.

3.       Government permission to conduct and activity.


Life Estate*

Rights of use, occupancy, and control, limited to the lifetime of a designated party, sometimes referred to as the life tenant.


Liquidation Value*

The most probable price that a specified interest in real property should bring under the following conditions:

1.       Consummation of a sale within a short time period.

2.       The property is subjected to market conditions prevailing as of the date of valuation.

3.        Both the buyer and seller are acting prudently and knowledgeably.

4.       The seller is under extreme compulsion to sell.

5.       The buyer is typically motivated.

6.       Both parties are acting in what they consider to be their best interests.

7.       A normal marketing effort is not possible due to the brief exposure time.

8.       Payment will be 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.

This definition can be modified to provide for valuation with specified financing terms.


Market Area*

The area associated with the subject property that contains its direct competition.

Market Rent*

The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the specified lease agreement, including permitted uses, use restrictions, expense obligations; term, concessions, renewal and purchase options, and tenant improvements.


Market Value – FIRREA

Market Value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.  Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(l) 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; and

(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.

Adopted as part of Final Rules in response to the Financial Institutions Reform Recovery and Enforcement Act by the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration in August 1990.

The Federal Home Loan Bank Board in Memorandum R‑41c originally published the above definition with inconsequential differences in September 1986, and the Appraisal Institute published essentially the same definition in 1992 in The Appraisal of Real Estate, Tenth Edition.  After adoption by federal regulators, this definition became mandatory for federally regulated lenders in late 1990.

This appraisal has been made under several assumptions regarding the definition.  The “specified date” quoted and the date of value of the appraisal are assumed to be the same.  Thus, the “sale” referred to in the definition is assumed to occur on the date of value.

The “reasonable time” quoted in Item 3 is assumed to have elapsed prior to, and to have ended on, the “specified date,” or date of value.  The value concluded pertains specifically to the date of value of this appraisal, not a future date, and reflects recent market trends leading up to the date of value.  If the property were put on the market on the date of value, the eventual sale price may, or may not, be equal to the appraised value.  This eventual sale price would depend on the asking price, marketing time, and market trends during the marketing period after the date of value.

The appraisal was made assuming “reasonable time” means the amount of time necessary to expose the subject to prospective purchasers, generally through brokerage, at a price that elicits interest.  Thus, the number of purchasers to which a property appeals largely determines reasonableness.  “Reasonable time” also allows time for competent, aggressive marketing of the property, analysis by prospective purchasers, negotiating a price, obtaining financing, and closing the transaction.

“Reasonable time” is also distinguished from any holding period relating to feasibility of a proposed use of a property.  If a substantial time will likely elapse before the highest and best use becomes feasible, the holding period is recognized in the value estimate by means of discounting the property’s value rather than by means of extending the marketing time.  The value conclusion recognizes that a typical purchaser will require a reduced price as compensation for a holding period, if such a holding period is necessary.

Market Value – UASFLA

The amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would have sold on the effective date of the appraisal, after a reasonable exposure time on the open competitive market, from a willing and reasonably knowledgeable seller to a willing and reasonably knowledgeable buyer, with neither acting under any compulsion to buy or sell, giving due consideration to all available economic uses of the property at the time of the appraisal.

Source: Uniform Appraisal Standards for Federal Land Acquisitions, Washington, D.C. 2000



1. A group of complementary land uses; a congruous grouping of inhabitants, buildings or business enterprises.

2. A developed residential super pad within a master planned community usually having a distinguishing name and entrance.


Partial Interest*

Divided or undivided rights in real estate that represent less than the whole (a fractional interest).


Personal Property*

1.       Identifiable tangible objects that are considered by the general public as being “personal,” – for example, furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; all tangible property that is not classified as real estate. (USPAP, 2010-2011 ed.)

2.       Consists of every kind of property that is not real property; movable without damage to itself or the real estate; subdivided into tangible and intangible. Also called personalty.

Physical Deterioration*

The wear and tear that begins when a building is completed and placed into service.

Physical Deterioration – Curable*

The form of physical deterioration that can be practically and economically corrected as of the date of appraisal.

Physical Deterioration – Incurable*

A form of physical deterioration that cannot be practically or economically corrected as of the date of appraisal.


Prospective Opinion of Value*

A value opinion effective as of a specified future date.  The term does not define a type of value.  Instead, it identifies a value opinion as being effective at some specific future date.  An opinion of value as of a prospective date is  frequently sought in connection with projects that are proposed, under construction, or under conversion to a new use, or those that have not achieved sellout or a stabilized level of long-term occupancy.


Real Estate*

An identified parcel or tract of land, including improvements, if any.  (USPAP, 2010-2011 ed.)


Real Property*

The interests, benefits, and rights inherent in the ownership of real estate.  (USPAP, 2010-2011 ed.)

Reasonable Market Value

Reasonable Market Value means the fair, actual, cash market value of the property. It is the price the property could have been sold for on the open market under the usual and ordinary circumstances, that is, under those circumstances where the owner was willing to sell and the purchaser was willing to buy, but neither was under an obligation to do so.  In determining the market value of property actually taken, the appraiser may not take into account any increase or decrease in value caused by the proposed public improvement.

Source:   Colorado Jury Instructions 4th: Civil; Chapter 36;

Eminent Domain (Condemnation) Section 36:3.


1. A future possessory interest in real estate that is given to a third party and matures upon the termination of a limited or determinable fee.  For example, A gives B a life estate in A’s farm for B’s lifetime. A also gives C an interest in the farm to take effect upon B’s death.  C has a remainder interest.

2. In eminent domain condemnation, a portion of a larger parcel remaining in the ownership of the property owner after a partial taking.


Remaining Economic Life*

The estimated period during which improvements will continue to represent the highest and best use of the property; an estimate of the number of years remaining in the economic life of the structure or structural components as of the date of the appraisal; used in the economic age-life method of estimating depreciation.


Residue means that portion of any property, which is not taken but which belongs to the respondent, and which has been used by, or is capable of being used by, the respondent, together with the property actually taken, as one economic unit.  (See Remainder)

Source:   Colorado Jury Instructions 3d: Civil, Chapter 36;

Eminent Domain (Condemnation) Section 36:4.


Sandwich Lease*

A lease in which an intermediate, or sandwich, leaseholder is the lessee of one party and the lessor of another.

Special Benefits*

In eminent domain valuation, the benefits that arise from the peculiar relation of the land in question to the public improvement, usually resulting from a change in its highest and best use.  Special benefits may accrue to multiple parcels (such as all four quadrants of a newly constructed freeway interchange) because the parcels are directly benefited in a similar manner, if not to the same degree.

In Colorado the effect of special benefits is calculated as follows:

In determining the amount of compensation to be paid for such a partial taking, the compensation for the property taken and damages to the residue of said property shall be reduced by the amount of any special benefits which result from the improvement or project, but not to exceed fifty percent of the total amount of compensation to be paid for the property actually taken.”

Source:   Colorado Revised Statutes, Title 38, Article 1, Section 114 (2)

Stabilized Year

Stabilized year as of date of value is used in discounted cash flow analysis as a hypothetical reference, or base year of operations of the real property from which to make cash flow projections.  It is not an actual year, but rather one that is calculated based on real property operations as of the date of value.  The rates of income and expenses, therefore on the date of value are annualized to create the stabilized year operating statement, which may differ from the twelve-month periods preceding or succeeding the date of value.  Stabilized‑year potential gross income is based on actual rents for leased space and market rents for vacant space.  A stabilized vacancy allowance is applied to derive effective gross income.  To account for contract rents that may differ from market rents for the same space, financial vacancy rather than physical vacancy is used.  Expenses in the stabilized year are estimated based on stabilized operations.  Particularly for buildings with non-market vacancy levels, some stabilized expense items may differ from the first year projections.


Terminal (Residual) Capitalization Rate*

The capitalization rate applied to the expected net income for the year immediately following the end of the projection period to derive the prospective resale price or value of a property. Also called a going-out, residual, or reversionary capitalization rate.


Trade Area*

The geographic area from which a retail facility consistently draws most of its customers; also called market area.


Value in Use*

The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal.  Value in use may or may not equal to market value but is different conceptually.


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