Tax Glossary A-M
This is a selected list of appraisal and
building terms which assessing officials and their staff may encounter in their
work. It is not, therefore, a complete list of terms used in appraisal and
building construction. Some terms have been omitted because their meanings are
common knowledge; others have been omitted because it is believed they will
seldom, if ever, be encountered.
4-3-2-1 Rule - Rule that states that the first 25% of depth represents 40% of the
value; the second 25%, 30% of the values; the third 25%, 20% of the value; and
the final 25%, 10% of the value.
65/35 Rule - Rule states that the value
of a triangular lot with its base on the facing street will be approximately 65%
of that of a rectangular lot of the same frontage and depth. The value of the
triangular lot with its apex on the facing street will be 35% of that of a
rectangular lot of the same frontage and depth.
Abstraction Method -
Method of land valuation whereby improvement values obtained from the cost model
are subtracted from sales prices of improved parcels to yield residual land
value estimates.
Accessory building - A
building subordinate to and used in conjunction with a principal or main
building. Accessory buildings include barns, cribs, sheds, and private
garages.
Ad Valorem Tax - Tax levied based on
the value of an item. The property tax is an ad valorem tax.
Adaptive Estimation Procedure (AEP) - A
computerized procedure using properties of which sales prices are known to
produce a model that can be used to value properties for which sales prices are
not known. Also called feedback.
Adjusted Sale Price - The sale price
adjusted, as necessary, for the effects of time, financing, and personal
property.
Adjustments - Modifications in the
reported value of a variable, such as sale price. These adjustments can be used
to estimate market value in the sale comparison approach, for example, by
adjustments for differences between comparable and subject
properties.
Age/Life - A method of estimating
accrued depreciation based on the age of the property and its economic life.
Another term is straight line depreciation.
Allocation Method - Method of land
valuation used in the absence of vacant land sales, by using a typical ratio of
land to improvement value
Amortization Rate - The ratio of the
periodic amortization payment to the total principal amount to be amortized;
corresponds to a sinking fund factor or rate; the difference between the
mortgage (annual) constant (RM) and the nominal rate of interest (I).
Amortization Schedule - A schedule of
debt repayment specifying the timing and amount of payments; a program of
retiring debt through the scheduled, systematic repayment of
principal.
Amortization - The process of retiring
a debt or recovering a capital investment through scheduled, systematic
repayment of principal; a program of periodic contributions to a sinking fund or
debt retirement fund.
Anchor Bolt - A bolt
embedded in a building foundation for use in fastening the building
superstructure to the foundation.
Annual Percentage Rate (APR) - The
effective annual interest rate. Truth in lending legislation requires that loan
instruments and advertising show the interest cost to the borrower in the form
of an annual rate, as distinguished from the nominal rate.
Anticipation - Market value accounts
for the present worth of future benefits or detriments associated with the
ownership of property.
Appraisal Date - The date as of which
the assessments for a tax year are made.
Appraised Value - An estimate of the
actual value of a property before the application of the legal assessment ratio
and partial exemptions.
Apron - The wood trim
beneath a window sill; also applied to concrete or blacktop area adjoining a
building or loading dock.
Arable Land - Land suitable for
cultivation.
Arm's-Length Sale - A sale between two
unrelated parties, each of whom is reasonably knowledgeable of market conditions
and under no undue pressure to buy or sell.
Ashlar - Cut stone laid in a definite
pattern but seldom in regular courses.
Assessed Value - The monetary amount
that a property is entered on the assessment roll for purposes of computing the
tax levy. Assessed values differ from the assessor's estimate of actual value
for three major reasons; fractional assessment ratios, partial exemptions, and
decisions by assessing officials to override market value estimates.
Assessment Date - The status date for
tax purposes. Appraised values reflect the status of the property and any
partially completed construction as of this date. (October 1-Pretax
year)
Assessment Level - The common or
overall ratio of assessed values to market values.
Assessor - The head of an assessment
jurisdiction, which may be an elected or appointed position.
Attribute - Characteristic, of a
property.
Balance - The principle
of balance as used in appraising is that the greatest value in property will
occur when the type and size of improvements and uses are proportional to each
other as well as to the land.
Balloon Framing -Frame
construction in which studs are fastened together in such manner as to form a
continuous or single piece from floor to roof rather than using heavy timbers
joined by mortises and tenons. Commonly used in barns.
Baluster - A small pillar or column
supporting a coping or handrail.
Balustrade - An ornamental railing or
parapet made of coping or a handrail and balusters.
Band Of Investment - A technique in
which cash flow rates attributable to components of a capital investment are
weighted and combined to derive a weighted average rate attributable to the
total investment.
Base Line - A principle east-west line
in the rectangular land survey system.
Baseboard - A trim board at the floor
line of an interior wall.
Base-Lot Method - A method of
appraising land parcels whereby each parcel to be appraised is compared with a
parcel of known value, called the base lot.
Batten - A narrow piece of lumber
commonly used to cover seam between two boards.
Bay Window - A window forming a recess
in a room, and projecting beyond the regular exterior walls of a
building.
Bay - A principal
division or compartment of a building marked off by columns, pillars, or similar
structural parts.
Beam - A principal horizontal load
carrying structural member of a building.
Bowstring Truss - A roof or floor
support having the form of a bow or arch.
Building Capitalization Rate (RB) - (1)
The rate used to convert building income into an indication of building value in
certain residual techniques or in a band of investment. (2) The ratio of
building income to building value.
Building Residual Technique - A
capitalization technique in which the net operating income attributable to
improvements is isolated and capitalized by the building capitalization rate
(RB) to indicate the improvements’ contribution to total property
value.
When the improvements’ value is added to the land
value, a total property value is estimated.
Built-Up Method - A method of
identifying the basic elements of compensable contribution in the development of
a discount rate or capitalization rate. There are four basic components of a
discount or capitalization rate; the pure or riskless rate, management,
nonliquidity, and risk.
Built-Up Rate - An overall
capitalization rate or a discount rate that represents the combination of a
safe, or risk-free, rate and rates that reflect other factors, e.g.,
nonliquidity, management, risk.
Bundle of Rights - The six basic rights
associated with the private ownership of property; right to use, sell, rent or
lease, enter or leave, give away, and refuse to do any of these.
Buttress. A support built into and
projecting from a masonry exterior wall to give additional strength to the
wall.
BX Wiring. Electrical cable in flexible
metal conduit.
Cadastral Map - A map
displaying property ownership boundaries, dimensions, and other useful
information, such as parcel identification numbers.
Capitalization of Ground Rent - Method
of estimating land value in the absence of comparable sales; applicable to
farmland and commercial land leased on a net basis.
Capitalization of Income Method -
Method of estimating accrued depreciation similar to the sales comparison method
except that values based on the income approach are used instead of comparable
sales.
Capitalization Rate - The ratio between
net income and value. The current value of a property can be estimated by
dividing its current or stabilized net income by the appropriate capitalization
rate.
Capitalization Rate - Any rate used to
convert income into value.
Carrara Glass - Heavy exterior
structural glass commonly colored black.
Casement. A hinged window frame,
commonly made so window will open outward.
Cash Equivalency Analysis - The
procedure in which the sale prices of comparable properties sold with atypical
financing terms are adjusted to reflect typical market terms.
Cash Equivalent - A price expressed in
terms of cash, as distinguished from a price expressed totally or partly in
terms of the face amounts of notes or other securities that cannot be sold at
their face amounts.
Cash Flow Analysis - A
study of the anticipated movement of cash in or out of real estate.
Cash Flow - The periodic income
attributable to the interests in real property. See also, after-tax cash flow
(ATCF); pre-tax cash flow (PTCF).
Change - The tendency of the social and
economic forces affecting supply and demand to alter over time, thus influencing
market value.
Chimney, An upright shaft of a
fireproof enclosure for disposing of smoke or waste gas. A chimney may contain
one or more flues.
Clapboard Exterior wall wood siding
with one edge thicker than the other. Also called lap siding.
Column. A heavy upright structural
member carrying building weight.
Comparative Unit Method - (1) The most
widely used method of cost estimating. Direct and indirect costs are summed and
divided by an appropriate unit to derive a cost per unit. (2) A method of
appraising land parcels in which an average or typical value is estimated for
each stratum of land.
Competition - The potential to make a
profit or get a bargain (when markets are not in equilibrium) attracts new
suppliers and sellers. For a while, the addition of new suppliers will tend to
lower prices and the increase in buyers will tend to raise prices. In time,
however, production will match demand and prices will stabilize.
Conduit. A pipe or tube enclosing
electrical wires, also a pipe or tunnel carrying water or enclosing
pipes.
Conformity - The value of a property
depends in part on its relationship to its surroundings. Value is created and
sustained when the characteristics of a property conform to the demands of its
market. Progression in value occurs when, the value of a lesser-quality property
is favorably affected by the presence of a better-quality property; regression
in value occurs when the value of a better-quality property is affected
adversely by the presence of a lesser-quality property.
Consistent Use - Consistent use is the
concept that land should -not be valued on the basis of one use, while the
improvements are valued on the basis of another.
Contribution - The value of property
component is measured in terms of its contribution to the value of the whole,
rather than by its cost alone.
Conversion Factor - A multiplier used
to bring costs and valuations into conformity with established standards as of a
specified date.
Coping - The top covering of an
exterior wall, commonly masonry, to give the wall a finished appearance and to
shed water.
Corner Influence - An effect on value
found most often in commercial properties because of greater case of entry and
exit, accessibility to higher volume of traffic and increased show-window and
advertising space.
Cornice - An ornamental projection at
the top of exterior wall of a building.
Cost Approach - The method of
estimating the value of property by: (1) estimating the cost of construction
based on replacement or reproduction cost new or trended historical cost (often
adjusted by a local multiplier); (2) subtracting depreciation; and, (3) adding
the estimated land value. The land value is most frequently determined by the
sales comparison approach.
Cost Index - An index showing the
variations in construction costs over time.
Cost Manual - Cost manual is a set of
cost factors organized in schedules or tables, with instructions for their
use.
Cost of Development - A method that
projects improvements to the land, estimates the total revenues and development
costs, and calculates the value residual to the land after subtraction of all
costs, expenses, and profit.
Cost to Cure - Estimated cost to
correct or replace a component or defect within a property.
Course - A continuous horizontal layer
of stone, brick, or other building material of uniform thickness in a
building.
Curable - That part of depreciation
that can be revised by correcting deferred maintenance and remodeling to relieve
functional obsolescence.
Curable Depreciation - Items of
physical deterioration and functional obsolescence that are economically
feasible to cure. See Also curable functional obsolescence; curable
physical deterioration.
Curable Functional Obsolescence - An
element of accrued depreciation; a curable defect caused by a defect in the
structure, materials or design.
Curable Physical Deterioration - An
element of accrued depreciation; a curable defect caused by deferred
maintenance.
Curtain Wall - A wall
which does not support any of the building weight other than its own weight.
A curtain may be removed and the building frame would still
stand.
Date of Sale (date of
transfer) - The date upon which the sale is agreed. This is considered to be the
date the deed, or other instrument of transfer, is signed.
Debt Coverage Ratio (DCR) - The ratio
of net operating income to annual debt service (DCR=NOI/IM). Also called
debt service coverage ratio (DSCR).
Debt Coverage - The ability of a
property to meet its debt service out of net operating income.
Debt Sevice (IM) - The periodic
payment that covers interest on and retirement of the outstanding principal of
the mortgage loan. Also called mortgage debt service.
Debt - (1) One of two characteristic
types of investment, the other being equity. The debt investor expects a
priority of claim on investment earnings and looks for security in the form of a
lien on the assets involved. Debt investors participate in bonds or mortgages
and receive fixed or variable interest on investment with repayment of the
principal upon maturity. (2) Money borrowed, usually for a specified period of
time, which may be secured or unsecured.
Demand - Schedule showing the amount of
a good or service that would be purchased at various prices during a given
period.
Depreciation - The loss in value to
property, after construction or purchase.
Depreciation Schedules - Tables used in
mass appraisal that show the typical loss in value at various ages or effective
ages for different types of properties.
Depreciation - The
difference between the value of a building (or other improvement) and the cost
of replacement at the same date.
Depth Factor - Standard, mechanical
technique for determining the values of an urban land lot having certain depth
from the value of a base lot having different dimensions.
Direct Capitalization - (1) The method
used to convert an estimate of a single year’s income expectancy or an annual
average of several of several year’s income expectancies into an indication of
value in one direct step, either by dividing the income estimate by an
appropriate rate or by multiplying the income estimate by an appropriate factor.
(2) A capitalization technique that utilizes capitalization rates and
multipliers extracted from sales. Only the first year’s income is considered.
Yield and value change are implied but not identified.
Direct Cost - Cost incurred in
construction on the site. For example: materials, labor, supervision and
utilities.
Discounted Cash Flow ( DCF) Analysis -
A set of procedures in which the quantity, variability, timing and duration of
periodic income, as well as the quantity and timing of reversions, are specified
and discounted to a present value at a specified yield.
Divided Rights - Rights to property
that have been divided among several owners in partnerships, joint tenancy,
tenancy in common, and time-sharing.
Drop Siding - Tongue and groove wood
siding forming a weather tight wall used as sheathing and
siding.
Drywall - Interior wall
constructed of material other than plaster, such as wallboard, fiberboard,
plywood, or other similar material.
Economic (External)
Obsolescence - A cause of depreciation that is a loss in value as a
result of impairment inutility and desirability caused by factors outside the
property's boundaries.
Economic Life (years) - The period of
time during which buildings or other improvements on a property are expected to
contribute positively to the value of the total property. At the end of this
period, the improvements are normally demolished and replaced.
Economic Rent - See market
rent.
Effective Age - The typical age of a
structure with respect to condition and utility, as of the appraisal
date.
Effective Age - Computed
or estimated age caused by modernization or alterations which increase the life
expectancy of the building or by adverse conditions which decrease the life
expectancy of the building.
Effective Gross Income (EGI) - The
anticipated income from all operations of real property adjusted for vacancy and
collection losses.
Effective Gross Income Multiplier(EGIM) -
The ratio between sale price or value and effective gross income; a single
year’s EGI expectancy or an annual average of several year’s EGI expectancies.
(EGIM=V/EGI).
Effective Interest Rate - Interest per
dollar per period; the nominal annual interest rate divided by the number of
conversion periods per year; also, the lender’s internal rate of return, if no
points are paid. Also called effective rate. See also nominal
interest rate (I).
Effective Tax Rate - The tax rate
expressed as a percentage of market value. It will be different from nominal tax
rate when the assessment level is not equal to one.
Ellwood Formula- The mortgage-equity
procedure that provides precalculated mortgage coefficients for many
combinations of equity yields and various mortgage terms; assumes that income
flow is level and that property value increases, decreases, or remains
stable.
Engineering Breakdown Method - A
detailed age-life method that can be used in conjunction with the
quantity-survey or unit-in-place methods of estimating RCN.
Enhancement - Increase in value due to
improvements.
Equalization - The process by which an
appropriate governmental body attempts to ensure that property under its
jurisdiction is appraised equally at market value, or as otherwise required by
law.
Equity Capitalization Rate (RE)
- An income rate that reflects the relationship between a single year’s pre-tax
cash flow expectancy, or an annual average of several years’ pre-tax cash flow
expectancies, and the equity investment; used in direct capitalization to
convert pre-tax cash flow into an equity value indication. Also called
equity dividend rate, cash on cash rate, and cash flow rate (RE =
pre-tax cash flow/equity).
Equity Ratio (1-M) - The ratio of down
payment to total price; the fraction of the investment that is unencumbered by
debt.
Exposed Beam Construction
- A type of construction in which the roof is supported by heavy structural
timbers rather than conventional rafters and in which the roof supports are
exposed to the interior. This type of construction gives a rustic
appearance.
Fee Simple Absolute (fee
simple) - In land ownership, complete interest in a property, subject only to
governmental powers.
Fee Simple Estate - Absolute ownership
unencumbered by any other interest or estate subject only to the four powers of
government.
Firewall - A wall
constructed of fire resistant material to prevent the spread of fire within a
building or between buildings. Exterior firewalls commonly extend above the roof
of the building.
Fixture - An item of equipment that,
because of the way it is used, the way it is attached, or both, has become an
integral part of a building, or other improvement. Once the fixture becomes an
integral part of the building, it is classified as real property.
Flashing - Strips (usually metal) used
at roof openings to make roofing joints waterproofed.
Flexicore - A hollow core precast
reinforced concrete plank.
Flue - The lining of a chimney,
commonly tile or metal.
Fractional Assessment - Assessments
that by law or by practice have assessment ratio/levels different from
one.
Fractional Section - A subdivision of a
Township containing more or less than 640 acres of land. Typically accounting
for the overage or deficiency in acreage is done on the north and/or west side
of a section, and Fractional Sections are found on the north and/or west side of
a Township.
Front Foot - A piece of
land one foot wide abutting a street or highway and extending back the full
depth of the parcel.
Functional Obsolescence - A cause of
depreciation which is a loss in value due to inability of the structure to
perform adequately, the function for which it is used, as of the appraisal
date.
Functional Utility - The ability of
improvements to satisfy market standards and demands.
Furring - Thin strips of
wood, metal, or brick fastened to a wall or beam to level a surface for lathing,
plastering attaching an additional surface, or for making an air
space.
Geographic Information
System (GIS) - One type of computerized mapping system capable of
integrating spatial data (land information) and attribute data among different
layers on a base map.
Girder - A structural member supported
at both ends and designed to carry a load.
Gross Rent Multiplier (GRM) - The
relationship or ratio between sale price or value and gross rental
income.
Gross Rental Basis - Refers to a lease
by which the lessor pays all operating expenses for the real
estate.
Ground Area - Total area
of enclosed portion of a building computed from exterior measurements taken at
top of foundation.
Gunite - Concrete blown into place by
compressed air.
Header - A layer of brick
or stone in a building wall with the short face to the front.
Highest and Best Use - Most profitable
use at a specific time, given legal, physical and financial
limitations.
Historical Cost - The original cost of
a building, improvement, or personal property, as opposed to the current
replacement, or reproduction cost.
IAAO - International
Association of Assessing Officers.
Income Approach - The method of
estimating the value of a property based on income capitalization. Income
figures should reflect current market conditions and typical
management.
Income Rate - A measure of investment
that reflects the ratio of one year’s income or the annual average of several
years’ income to value, e.g., overall capitalization rates (R0), equity
capitalization rate (RE), mortgage constant (RM). Also called cash
flow rate.
Incurable - A part of depreciation
where it is not economical to correct the condition, and if corrected, the cost
of correcting the condition exceeds the value.
Indirect Costs - Costs incurred in
construction away from the site. For example: fees, permits, insurance and
loans.
Intangible Personal Property - Rights
over tangible real and personal property, but not rights of use and possession,
for example, notes, bonds, stocks, patents, mortgages, copyrights, and insurance
policies.
Inwood Annuity Capitalization - A
traditional technique in which present value factors, or Inwood coefficients,
from standard compound interest tables are used to discount a stream of level
income to present worth; an annuity that can be capitalized with an Inwood
factor, or coefficient.
Inwood Annuity - An ordinary level
income stream.
Inwood Factor - A factor that reflects
the present worth of $1 per period for a given number of periods, discounted at
a given discount rate; obtained by calculation or from standard compound
interest tables. Also called Inwood coefficient.
Inwood Premise - The premise stating
that the present value of an income stream is derived by applying a single
discount rate.
Jamb - Upright side of a
doorway, window, or fireplace.
Joist - Timber to which flooring or
ceiling laths are fastened.
Kellastone - Stucco
exterior wall material with crushed rock finish and magnesite base.
Land Capitalization
Rate(RL) - (1) The rate used to covert land income into an
indication of land value in certain residual techniques or in a band of
investment. (2) The ratio of land income to land value.
Land Description Systems - commonly
referred to as legal descriptions, are written descriptions of the physical
boundaries of property rights.
Land Residual Technique - A
capitalization technique in which the net operating income attributable to the
land is isolated and capitalized to indicate the land’s contribution to total
property value.
Lap Siding - Exterior wall siding with
one edge thicker than the other, also called clapboard.
Law of Variable Proportions - Often
called law of decreasing returns or the law of proportionality, which states
that when the quantity of one productive service is increased by equal
increments, the quantities of other productive services remaining fixed, the
resulting increment of product will decrease after a certain point.
Lease Interest - One of the real
property interests that results from the separation of the bundle of rights by a
lease, i.e., the leased fee estate or the leasehold estate.
Leased Fee Estate - An ownership
interest held by a landlord with the right of use and occupancy conveyed by
lease to others; the rights of lessor or the leased fee owner and leased fee are
specified by contract terms contained within the lease.
Leasehold Estate - The right to use and
occupy real estate for a stated term and under certain conditions; conveyed by
lease.
Lessee - One who has the right to use
or occupy a property under a lease agreement; the leaseholder or
tenant.
Lessor - One who holds property title
and conveys the right to use and occupy the property under a lease agreement;
the leased fee owner or landlord.
Lien - The legal right to take or hold
property of a debtor as payment or security for a debt.
Lintel - Horizontal piece
of timber, stone, or metal over doorway or window supporting the wall above the
doorway or window.
Live Load - The weight carried by a
floor by use including machinery, equipment, materials and
persons.
Load Bearing Wall - A
wall, which supports not only its own weight, but that of the walls and roof
above it. A load-bearing wall, in contrast to a curtain wall, cannot be removed
without destroying the building.
Local Multiplier - An adjustment to
replacement or reproduction cost new or historical cost, to reflect local
costs.
Long-Lived Items - Items that are the
basic structure of a building and are not usually replaced during economic life.
For example: foundation, roof structure, and framing.
Lot and Block Survey - A plat in which
a larger parcel of land is subdivided into small units for the purpose of sale.
Conveyances need to refer only to the lot, block, and plat book
designation.
Louver - A ventilator
built of slats slanted so as to admit air but to prevent water, snow, and other
foreign objects from entering the opening. The slats may be movable or
rigid.
Market Value - The most
probable sale price of a property in terms of money in a competitive and open
market, assuming that the buyer and seller are acting prudently and
knowledgeably, allowing sufficient time for the sale, and assuming that the
transaction is not affected by undue stimuli.
Marquee - Covering over
the entrance to a theater, hotel, or store. A marquee usually is supported by
supports from-the building.
Mass Appraisal - The systematic
appraisal of groups of properties as of a given date using standardized
procedures and statistical testing.
Meridian - A principle north-south line
in the rectangular land survey system.
Metes and Bounds - A land description
system in which boundaries are described as distances between two semi-permanent
points or as lines following compass bearings.
Mill Type Construction -
Heavy appearing structure with masonry load bearing walls, heavy wood framing,
and heavy plank or laminated flooring.
Millage, Mill Rate - One mill is
one-thousandth of one dollar or one-tenth of one cent. Used as a rate to
calculate amount of taxes.
Model - Mathematical equations used to
analyze quantities of data. Most of the models used in real estate appraisal are
based on one of the three approaches to value.
Model Calibration - The development of
adjustments, or coefficients based on sales analysis, that identifies specific
factors that have an actual effect on market value.
Model Specification - The formal
development of a model in a statement or equation, based on data analysis and
appraisal theory.
Monitor Roof - A
comparatively small roof structure built on the main roof to provide light and
ventilation. Monitors are found mostly in barns, sheds, and industrial
buildings.
Monolithic Concrete - Poured (solid)
concrete.
Mortgage Constant (RM) - The
capitalization rate for debt; the ratio of the annual debt service to the
principle amount of the mortgage loan. Also called mortgage
capitalization rate (RM = debt service/ mortgage
principal).
Mortgage Debt Service (IM) - The
periodic payment for interest on and retirement of the principal of a mortgage
loan.
Mortgage Requirement - The periodic
level payment, or installment, required for debt service, i.e., interest plus
principal. on a direct reduction loan. See also mortgage constant
(RM).
Mortice - A rectangular
hole in one piece of wood cut to receive a projection on another piece, so as to
form a Joint
Mud Sill Foundation - A foundation
constructed of heavy timbers laid on the ground.
Mullion Upright divider between
windowpanes, or a series of joined doors, or panels.
Multiple Regression Analysis (MRA) - A
statistical technique similar to correlation used to analyze data in order to
predict the value of one variable (dependent), such as market value, from the
known values of other variables (independent) such as lot size, number of rooms,
etc.
MVS - Marshal Valuation Service,
published by Marshall Swift.