Concepts Definitions

• Appraisal: The process of evaluating an applicant’s capability to meet the obligations of a real estate loan. More broadly, it is the valuation of real property, which is important for buyers, sellers, agents, and lenders, as it provides a neutral and fair assessment of the true market value of a property.

• Market Value: The highest price a willing buyer will pay for a property and the lowest a willing seller will accept, assuming no undue, outside pressures. It is the dollar amount at which a market clears between a willing buyer and a willing seller, made under their own free will without negative outside influences.

• Sales Comparison Approach (Market Data Approach): One of the three key methods of appraisal, considered the most popular and reliable for residential one-to-four-unit properties. It compares recently sold, similar properties (comparables or “comps”) to the subject property to estimate its value.

• Principle of Substitution: An economic principle stating that if two properties are equally desirable, the less expensive one is likeliest to sell first.

• Income Approach (Capitalization Method): One of the three methods of appraisal, primarily used for income-producing properties. It derives a property’s value from the anticipated income it generates, often by dividing the net operating income (NOI) by a capitalization rate.

• Physical Characteristics: Tangible features of a property such as its size (square footage), age, condition, design, and number of rooms, which significantly influence its value.

• Location: The geographical position of a property, a fundamental factor in real estate value due to its influence on desirability, access to amenities, and environmental factors.

• Single-Family Residence: A dwelling designed for one family, typically owner-occupied. When appraised, its value is usually determined by comparing it to prices of similar homes that have recently sold in the area, rather than its potential rental income.

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