Intermediate terms

Essential Real Estate Appraisal Terms

This curated collection includes key terms that might be helpful when exploring property appraisals. It covers the essential concepts, methodologies, and related financial terms involved in validating a property's value for investment and lending purposes. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

Purchase Agreement

A Purchase Agreement is a legally binding contract that outlines the terms and conditions of a real estate transaction, formalizing the buyer's offer and the seller's acceptance.

Intermediate12-13 min

Appraisal Report

A professional, unbiased report by a licensed appraiser that estimates a property's fair market value at a specific point in time, primarily used for financing and real estate transactions.

Beginner5 min

Income Approach

The Income Approach is a real estate valuation method that estimates a property's value based on the income it is expected to generate, making it essential for evaluating investment properties.

Intermediate8 min

Appraisal Contingency

An appraisal contingency is a clause in a real estate purchase agreement that allows the buyer to back out of the deal or renegotiate if the property's appraised value is less than the agreed-upon purchase price. It protects buyers from overpaying and ensures lenders do not finance more than a property is worth.

Intermediate5 min

Mortgage

A mortgage is a loan obtained from a lender to purchase real estate, where the property itself serves as collateral for the debt. Borrowers make regular payments, including principal and interest, over a set period until the loan is fully repaid.

Beginner15-18 min

Assessed Value

Assessed value is the dollar value assigned to a property by a public tax assessor for the purpose of levying property taxes, typically a percentage of its market value.

Intermediate12-13 min

Cost Approach

A real estate valuation method that estimates a property's value by summing the cost to replace or reproduce its improvements, subtracting accrued depreciation, and adding the value of the land.

Intermediate12-13 min

Appraisal Gap

An appraisal gap is the difference that occurs when a property's appraised value is lower than the agreed-upon purchase price, requiring the buyer to cover the shortfall in cash or renegotiate the deal.

Intermediate8 min

Appraisal

An appraisal is an unbiased, professional opinion of a property's market value, conducted by a licensed appraiser, primarily used for lending, buying, and selling decisions.

Intermediate14-15 min

Loan-to-Value Ratio

The Loan-to-Value (LTV) ratio is a financial metric used by lenders to assess the risk of a mortgage loan, calculated by dividing the loan amount by the property's appraised value, expressed as a percentage.

Intermediate14-15 min

Down Payment

A down payment is an initial upfront payment made when purchasing a property, representing a portion of the total purchase price and reducing the amount of money borrowed through a mortgage.

Intermediate15-18 min

Lender

A lender is an individual or financial institution that provides funds to a borrower for real estate acquisition or development, expecting repayment with interest. They are crucial for leveraging capital in real estate investment.

Intermediate13-14 min

Underwriting

Underwriting is the process by which lenders assess the risk of lending money for a real estate transaction, evaluating the borrower's creditworthiness and capacity to repay, as well as the property's value and marketability.

Intermediate15-18 min

Collateral

Collateral is an asset or property pledged by a borrower to a lender to secure a loan, providing a guarantee for repayment and reducing the lender's risk.

Intermediate11-12 min

Comparable Sales

Comparable Sales (Comps) are recently sold properties similar in characteristics to a subject property, used to estimate its fair market value.

Intermediate12-13 min

Market Value

Market value in real estate is the most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller acting prudently, knowledgeably, and typically uninfluenced by undue stimulus.

Beginner15-18 min

Principal

Principal refers to the original amount of money borrowed for a real estate loan, or the remaining balance of that borrowed amount, excluding interest and fees. It is the core sum that directly reduces debt and builds equity.

Intermediate13-14 min

Sales Comparison Approach

The Sales Comparison Approach (SCA) is a real estate valuation method that estimates a property's value by analyzing recent sales of similar properties and adjusting for differences.

Intermediate14-15 min