To be able to fully understand the concepts of residential real estate appraisal, here is a list of important terms with meaning. Appraisal becomes important in times of selling the property, buying a property, divorcing the partner, settling the estate, and relocating an employee. In some point of our lifetime, we are going to encounter appraisals at least once.

Fair Market Value

It is the median price between the highest price acceptable to buyer and lowest price acceptable to seller.

Market Value

It is the most likely price at which the property would sell. The property must sell at a right price in which the price is not too high and low. Thus, an overprice property will sell a little longer. In most cases, an overprice property sells when the market value catch up with the selling price.

Price

It is often confuse with Market Value. Price differs slightly from Market Value. Although the Market Value gives the seller an idea how much to sell the property, the price may be higher or lower than the Market Value. For example, a buyer is willing to pay $20,000 more than the Market Value. This happens when there are many potential buyers for the property.

Value in Use

This relates to the net present value (NPV) of the property use. The NPV is the difference between present value of cash inflow and outflow. For example, a home buyer wants to purchase a property. He estimates the future cash flow that the property would generate. Then, he discounts the cash flow into a lump sum value amount. Let us say $450,000. If the home owner sells less than $450,000, the home buyer considers in purchasing the property.

Investment Value

It is the amount that the investor would pay to acquire the property. The Investment Value may be higher or lower than the fair Market value.

Insurable Value

The Insurance Policy covers the value of the property which is the Insurable Value.

Subject Property

It is the property which the appraiser evaluates or analyzes. The Appraiser analyzes the location, amenities, and condition of the subject property to arrive to the fair market value.

Comparables or Comps

Appraiser compares the subject property to another local property. The other local property is called Comparables or Comps. With the information from Comparables or Comps, the Appraiser calculates the fair market value of the subject property.

Real Estate Appraisal covers a huge scope. It is impossible to include all appraisal terms. For any missing key terms, you may consider online mortgage dictionary. A dictionary awaits your command. In an instant, it searches for possible definition.