The following definitions are provided and to be used for educational and informational purposes only. We have made steps to provide citations for definitions that are verbatim and inspired by professional resources. Specifically, the JSO team thanks the Appraisal Institute. Many of our definitions are drawn from The Dictionary of Real Estate Appraisal, 6th edition. Please note that the reproduction of any cited definitions must honor the citing standards in place by the publishing entity.
Absolute Net Lease: A lease in which the tenant pays all expenses including structural maintenance, building reserves, and management; often a long-term lease to a credit tenant. 
Adaptive Reuse and Adaptive Use: A new use of an existing building or site, which is usually mod- i ed to meet contemporary demand, e.g., the conversion of an obsolete manufacturing building into loft apartments. 
Ad Valorem and Ad Valorem Taxation: According to value. This term is often used when referring to the value placed on a site by an assessor. One of the most common examples of this is property tax, which is determined by an assessor according to the value of the sale.
After-tax Cashflow (ATCF): The portion of pre-tax cash ow that remains after all income tax liabilities have been deducted. 
After-tax Equity Yield Rate: The annualized rate of return on equity after payment of income taxes, including those that are or will be incurred upon disposition of the investment; the internal rate of return after taxes. 
Appraisal: (noun) the act or process of develop- ing an opinion of value; an opinion
of value. (adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services. Comment: An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value). 
Appraiser: One who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective. 
Appraisal Approach: A systematic process of developing an opinion of value. Depending on the nature of the property, purpose of the assignment, and scope of work, three approaches may be applied: sales comparison, income capitalization, and cost approaches or variations thereof. 
Assessed Value: The value of a property according to the tax rolls in ad valorem taxation; may be higher or lower than market value, or based on an assessment ratio that is a percentage of market value. 
Assessment Ratio: The relationship between assessed value and market value; also called assessment-sales price ratio. 
Axial Growth: Urban growth that takes the form of finger-like extensions radiating out along major transportation routes. 
Axial Theory: A theory of land use development that holds that urban development expands along transportation routes such as highways, railroads, and waterways that radiate out from the central business district. A beltway around the metropolitan area may link these arterial axes at or near the perimeter. Also called radial corridor theory. 
Below-the-line Expense: An expense that is recorded “below” the net operating in- come line in a reconstructed operating statement and therefore is not considered part of the total stabilized operating expenses for the property. Tenant improvements and leasing commissions are the most common line items recorded below the net operating income line for analytical purposes. 
Bottom Line: The final line in a company’s or business’s account/statement balance, which shows the net earnings. Contributing to the bottom line refers to increasing profit.
Business Equity: The interests, bene ts, and rights inherent in the ownership of a business enterprise or a part thereof in any form (including, but not necessarily limited to, capital stock, partnership interests, cooperatives, sole proprietorships, options, and war- rants). 
Business Start-up Costs: Pre-opening expenses necessary to turn completed real estate into an operating business; can include initial operating losses, operating capital, advertising and promotions, assembling a workforce, training, etc. 
In real property investment, the money or the goods accepted by the seller in an investment sale.
Money available for investment.
One of the four agents of production in economic theory; physical capital required for real estate development, such as equipment (machinery and tools), buildings, and infrastructure (that is, capital goods) that can produce other goods. 
For firms, assets (either tangible or intangible) that are long-term investments bought and sold as part of normal business or for investment purposes and that are generally purchased for the purpose of producing income, e.g., land, buildings, machinery, equipment.
In accounting, all property held by an individual for personal or investment purposes, but excluding stock in trade, depreciable property, copyrights, or accounts receivable related to the individual’s trade or business.
Capital Cost: One-time expenses that occur when completing a project. These expenses include purchase of land, property, equipment, and more.
Capital Expenditure: Investments of cash (or the creation of liability) to ac- quire or improve an asset, e.g., land, buildings, building additions, site improvements, machinery, equipment; as distinguished from cash outflows for expense items that are normally considered part of the current period’s operations. Also referred to as cap ex. 
Capital Expense: The expenses that a property owner occasionally incurs that are required to upgrade the property or make capital replacements; also called capital charge. 
Capitalization Rate: Capitalization is the conversion of income generated by a property into value for that property. The capitalization rate is a ratio of one year’s net operating income provided by an asset to the value of the asset; used to convert income into value in the application of the income capitalization approach. 
Commercial Property: Income-producing property such as of office buildings, retail buildings, hotels, banks, restaurants, service outlets, and owner-occupied properties that are capable of becoming income-producing should the owner so decide; usually zoned for business purposes. 
Commercial Real Estate (CRE): A broad classification of income-producing real estate, including of office buildings, shopping centers, and multifamily residential properties. 
Comparables: A shortened term for similar property sales, rentals, or operating expenses used for comparison in the valuation process. In best usage, the thing being compared should be specified, e.g., comparable sales, comparable properties, comparable rentals. 
Comparative Analysis: The process by which a value indication is derived in the sales comparison approach. Comparative analysis may employ quantitative or qualitative techniques, either separately or in combination. 
Concentric Zone Theory: A theory of urban growth, developed by Ernest W. Burgess in the 1920s, which holds that predominant land uses tend to expand out from a city’s central business district to form a series of concentric, circular zones. 
Cooperative ownership (Co-op): A form of property ownership in which each unit owner holds stock in a cooperative apartment building or housing corporation. Stockholders receive a proprietary lease on a specific apartment and are obligated to pay a monthly maintenance charge that represents the proportionate share of operating expenses and debt service on any underlying mortgage, which is paid by the corporation. This proportionate share is based on the proportion of the total stock owned. 
Cost Approach: A set of procedures through which a value indication is derived for the fee simple estate by estimating the current cost to construct a reproduction of (or replacement for) the existing structure, including an entrepreneurial incentive or profit; deducting depreciation from the total cost; and adding the estimated land value. Adjustments may then be made to the indicated value of the fee simple estate in the subject property to reflect the value of the property interest being appraised. 
Drive-Time Studies: Drive-time studies provide key information regarding the population and demographics within certain driving distances from a site. For example, they can provide information regarding how many people live within a 5, 10, and 30-minute drive from the site and demographics pertaining to that population. These studies also analyze competing businesses in the area within driving distance, when applicable. This information aids in creating a thorough and accurate appraisal of the site in question.
Easement: The right to use another’s land for a stated purpose.
E-commerce: The use of computers and electronic communications in business transactions. May include the use of electronic money exchange, Internet advertising, Web sites, online databases, computer networks, and point-of-sale (POS) computer systems. 
Economic Base Analysis: A survey of the industries and businesses that generate employment and income in a community as well as a study of functions of employment such as the rate of population growth and levels of income. Economic base analysis is used to forecast the level and composition of future economic activity. Specifically, the relation- ship between basic employment (which brings income into a community) and nonbasic employment (which provides services for workers in the basic employment sector) is studied to predict population, income, or other variables that affect real property values or land use. 
Characteristics that affect a property’s income.
An element of comparison in the sales comparison approach. Comparable sales can be adjusted for differences in property attributes that affect income, such as operating expenses, quality of management, tenant mix, rent con- cessions, lease terms, lease expiration dates, renewal options, and lease options such as recovery clauses. 
Equalization Rate or Equalization Ratio: Refers to the process wherein a governmental body/municipality attempts to ensure that all property is assessed at the same assessment rate/ratio or at those required by law. The rate/ratio is generally the property’s assessed value (assigned by local assessor) divided by its market value (assigned by state or other entity/professional), resulting in a percentage. The results in a rate/ratio that is often published on a county website.
Excess Land: Land that is not needed to serve or support the existing use. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land has the potential to be sold separately and is valued separately.
Fair Market Value:
In nontechnical usage, a term that is equivalent to the contemporary usage of market value.
As used in condemnation, litigation, in- come tax, and property tax situations, a term that is similar in concept to mar- ket value but may be de ned explicitly by the relevant agency. For example, one definition of fair market value provided by the Internal Revenue Service for certain purposes is as follows: 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 relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.
Fee Simple Interest or Fee Simple Estate: The Dictionary of Real Estate Appraisal states, “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.” 
The term is commonly used to reference the fee simple owner and their full rights legal rights to possess, use, and transfer the land.
Going Concern Value: The total value of a healthy business; the value of the property plus the goods and assets associated with that business. The Dictionary of Real Estate Appraisal adds: "A going concern is a business having the ability to continue functioning as a business entity in the future. In accounting, a business is considered to be a going concern if it is likely to continue functioning 12 months into the future." 
Gross Lease: a lease wherein the landlord receives stipulated rent and is responsible for paying all the property’s operating expenses and fixed expenses.
Highest and Best Use: The reasonably probable use of property that results in the highest value. The four criteria that the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. 
Homogeneous: Being similar in nature to other parts or elements; e.g., a market area or neighborhood where the property types and uses are similar and the inhabitants have compatible cultural, social, and economic interests. 
Income Approach or Income Capitalization Approach: The income approach is used to value properties that generate income, and consider the capitalization rate of the property. According to the Dictionary of Real Estate Appraisal, “Specific appraisal techniques applied to develop a value indication for a property based on its earning capability and calculated by the capitalization of property income.” 
A simple example to demonstrate income approach theory is an appraiser using market sales of comparable sites (comparables) for choosing a capitalization rate. When valuing a twelve-unit office building in a county A, the appraiser studies the recent sale prices of similar properties in county A. After calculating the capitalization rate, the appraiser can divide the property’s net operating income (NOI) by that rate. If this property has an NOI of $3 million and a chosen capitalization rate of 8% is worth $37.5 million.
Joint Tenancy: Shared ownership by two or more persons. Both have the right of survivorship.
Joint Venture. An enterprise of two or more entities created for the purpose of undertaking a specific project. The entities involved keep their distinguishing characteristics and individual identities.
Leased Fee Interest: The ownership interest held by the lessor or landlord, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires. 
Leasehold Interest: The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease. 
Local Economic Analysis: Study of the fundamental determinants of the demand for and supply of all real estate in the market. The analysis considers the factors basic to the demand for all types of real estate in a local economy—i.e., population, households, employment, and income. Past trends and forecasts of these basic demand determinants are made for a defined geographic area. The supply-side factors to be considered include the amount of land available for specific land uses, construction costs, and the local infrastructure. Economic base analysis and input-out- put analysis are two techniques used to describe the local economy. 
Locational Obsolescence: A loss in value due to proximity to something that changes value, such as a landfill or traffic. Locational obsolescence is usually incurable. See also external obsolescence. 
Location Analysis: In market analysis for real estate, a study of the placement of spatial attributes and how these attributes relate to specific functions. Location Quotient (LQ): A ratio of the percentage of local employment in a given industry to the percentage of region, state, or national employment in the same industry. For a given industry, the location quotient could be calculated as follows:
LQ = e/E, where
e = Local Employment in Given Industry/Local Employment in All Industries
E = National Employment in Given Industry/National Employment in All Industries 
Market Value: According to the Dictionary of Real Estate Appraisal, market value refers to "The most probable price that the specified property interest should sell for in a competitive market after a reasonable exposure time, as of a specified date, in cash, or in terms equivalent to cash, under all conditions requisite to a fair sale, with the buyer and the seller each acting prudently, knowledgeably, for self interest and assuming that neither is under duress." 
Net Lease: A lease wherein the tenant pays both the base rent and all of the other property expenses (real estate taxes, common area maintenance, utilities, insurance, etc.)
Net Operating Income (NOI): The actual or anticipated net income that remains after all operating expenses are deducted from effective gross income but before mortgage debt service and book depreciation are deducted. 
Ring Studies: The Dictionary of Real Estate Appraisal defines these studies as: “A trade area analysis tool that divides the area surrounding the subject property into concentric zones, or rings. Ring studies analyze demographic and competitive characteristics. They do not recognize geographic barriers or traffic routes within the trade area.” See also Concentric Zone Theory
Scope of Analysis or Scope of Work: The type and extent of research and analyses in an appraisal or appraisal review assignment. 
Stock Keeping Units (SKU): SKUs are the total number of individual product lines that are in a store for sales at any given time.
Structural Risk: These can be viewed as risks that affect an entire industry. Economic trends are an example of a structural risk that will affect business/company within a given industry.
Undevelopable Land: Land area that cannot be used practicably for the development of structures and other improvements because of limitations imposed by
natural conditions, such as steep slopes, severe topography, or bod- ies of water, or
man-made conditions, such as existing development which isolates
a portion of the site and prevents its further development, setbacks or development restrictions that prohibit development of a given area of a lot by law or private agreement, or existence or absence of easements or access rights that prevent development of a given area. 
Unimproved Land: Vacant land or land that lacks the essential, appurtenant improvements required to make it useful. Also called raw land. 
Units of Comparison: The components into which a property may be divided for purposes of comparison, e.g., price per square foot, front foot, cubic foot, room, bed, seat, apartment unit. 
For office buildings, the actual occupiable area of a floor or an of office space; computed by measuring from the finished surface of the of office side of corridor and other permanent walls, to the center of partitions that separate the of office from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent outer building walls. Sometimes called net building area or net floor area. Also called floor area.
The area that is actually used by the tenants measured from the inside of the exterior walls to the inside of walls separating the space from hallways and common areas. 
Use Value: 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. Use value may or may not be equal to market value but is different conceptually. Also called value in use. 
Use Value Assessment: An assessment based on the value of property as it
is currently used, not on its market value considering its highest and best use. This sort of assessed value is sometimes used where legislation has been enacted to preserve farmland, timberland, or other open space land on urban fringes. 
Valuation Process: A systematic set of procedures an appraiser follows to provide answers to a client’s questions about real property value. At a glance, the steps include:
1) Identification of problem and/or need
Identify client and intended users
Identify the intended use
Identify the purpose of the assignment (type and definition of value)
Identify the effective date of the opinion
Identify the relevant characteristics of the property
2) Scope of Work Determination
3) Data Collection and Property Description
Market Area Data - General characteristics of region, city, and neighborhood
Subject Property Data - Subject characteristics of land use and improvements, personal property, business assets, etc.
Comparable Property Data - Sales, listings, offerings, vacancies, cost and depreciation, income and expenses, capitalization rates, etc.
4) Data Analysis
Market Analysis - Demand studies Supply studies Marketability studies
Highest and Best Use Analysis - Land as though vacant Ideal improvement Property as improved
5) Land Value Opinion
6) Application of the Approaches to Value
Sales Comparison Approach
Income Capitalization Approach
7) Reconciliation of Value Indications and Final Opinion of Value
8) Report of Defined Value 
Visibility Analysis: A process examining property elements that provide potential site users with information about the activities and conditions available on the site and affect their decision to continue to use it. Such a study concentrates specifically on the visibility of all the site’s principal and support- ing uses, specific activities and points that require more visibility, signs and information about such activities, and access conditions and internal site connections. 
Yield Rate (Y): A rate of return on capital, usually expressed as a compound annual percentage rate. A yield rate considers all expected property benefits, including the proceeds from sale at the termination of the investment. 
Yield to Maturity: In nance, the total rate of return that would be realized on an investment such as a bond if purchased at the current market price, held as an investment, and redeemed for the principal amount at maturity. 
Z Lot: A lot and tract design such that portions of adjacent Z-shaped lots
in fee are burdened with exclusive easements serving the next lot, for the purpose of maximizing the density of detached units while retaining yard spaces. 
Zoning: Public regulation of the use of private land through application of police power; accomplished by establishing districts or areas with uniform requirements relating to lot coverage, setbacks, type of improvement, permitted activities, signage, structure height, minimum lot area, density, landscaping, and other aspects of land use and development. Zoning regulations are established by enactment of a local (city, town, or county) zoning ordinance. 
 Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015)
 USPAP, 2016-2017 ed.
 IRS Regulation §20.2031-1