Appraisal & Valuation Definitions, Terms & Terminology
Updated: Apr 16, 2022
(Adopted from the American Society of Appraisers (ASA) for the Marine Industry and Uniform Standards of Professional Appraisal Practice (USPAP), (2016-2017 Edition). Reference Material & Definitions incorporated, as applicable, in Marine Appraisals & Marine Survey Reports, prepared by Karatzas Marine Advisors & Co.
For "Value Definitions, Terms and Terminology", please see here!
Accrued Depreciation: The loss of value from all causes, including physical deterioration, functional obsolescence, and economic obsolescence
Accumulated Depreciation: An accounting term that represents the total depreciation taken against the cost of an asset, as of a given date
Actual Cash Value: A term primarily used for insurance purposes equivalent to replacement cost new less physical depreciation (See insurable value depreciated.)
Ad valorem tax: A property tax levied on tangible property that varies with the value of the property
Age/life Analysis: An arithmetic process used to calculate a property’s expired life and/or remaining useful life
Allocation of Purchase Price: Refers to the allocation of the lump sum paid to each asset acquired
Appraisal (noun) is the act or process of estimating value or an estimate of value; Appraisal (adjective): of or pertaining to appraising and related functions such as appraisal practice or appraisal services. Value is defined as the monetary worth of property, goods, or services. In other words, an appraisal is an unbiased opinion of value or other physical attributes of identified property.
Appraisal Date: The specific date to which the values contained within an appraisal apply (valuation date or date of value)
Appraisal Practice:: valuation services performed by an individual acting as an appraiser, including but not limited to appraisal and appraisal review.
Appraisal Review: the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.
Appraisement: Determination of the dutiable value of imported merchandise by a Customs official who follows procedures outlined in their country’s tariff, such as the U.S. Tariff Act of 1930.
Appraiser: One who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.
Appraiser's Peers: Other appraisers who have expertise and competency in a similar type of assignment.
Appraiser’s Stores: The warehouse or public stores to which samples of imported goods are taken to be inspected, analyzed, weighed, etc. by examiners or appraisers.
Assessed Value: Value of property for local property tax purposes
Asset: Property of all kinds, both tangible and intangible.
Assignment: 1) An agreement between an appraiser and a client to provide a valuation service; 2) the valuation service that is provided as a consequence of such an agreement.
Assignment Results: An appraiser’s opinions or conclusions developed specific to an assignment.
Assumption: That which is taken to be true.
Average Life: The normal expected life of a property
Average Remaining Life (ARV): Average remaining term of service for asset(s) under investigation, usually expressed in years.
Bias: A preference or inclination that precludes an appraiser’s impartiality, independence, or objectivity in an assignment.
Book Value (BV): The capitalized cost of an asset less the depreciation taken for financial reporting.
Business Enterprise: An entity pursuing an economic activity. Business Equity: The interests, benefits, 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 warrants).
Capitalize: A valuation technique to convert an income stream into an indication of value by dividing a selected income by a factor, called a capitalization rate (appraisal); or the recording of assets on the books of a company (accounting)
Chronological Age: The number of years elapsed since an item of property was originally built.
Client: the party or parties who engage, by employment or contract, an appraiser in a specific assignment.
Coinsurance: An arrangement under which the insured, in return for a reduced premium, agrees to share in the loss in proportion to that which the insurance carried relates to a specified percentage of the property insured
Condemnation: The actual process of the taking of private property for public purposes by a public body through the lawful use of its power of eminent domain.
Confidential Information: Information that is either a) identified by the client as confidential when providing it to an appraiser and that is not available from any other source; or b) classified as confidential or private by applicable law or regulation.
Cost: The amount required to create, produce, or obtain a property.
Cost approach: One of three recognized approaches to value that begins with the reproduction cost new or replacement cost new and deducts all forms of depreciation to determine an estimate of value. (It considers that the maximum value of a property to a knowledgeable buyer would be that amount currently required to construct a new one of equal utility, adjusting for differences in age, condition, and any other depreciation factors.)
Credible: Worthy of belief.
Curable Depreciation: Any form of depreciation that is economically feasible to remedy. (The resulting increases in utility and value are equal to or greater than the expenditure to cure.)
Depreciation (accounting): A mathematical procedure for recovering the original cost of an asset in consistent installments over a specific period
Depreciation (accumulated): Account in which accrued depreciation provisions are totaled to a given date
Depreciation (appraisal): The actual loss in value of a property from all causes, including those resulting from physical deterioration, functional obsolescence, and economic obsolescence.
Depreciation Method (declining balance, accounting): An accounting method under which an annual depreciation provision is computed at a fixed percentage applied to the unrecovered cost at the beginning of the period. (The unrecovered cost is reduced each year by the prior year’s depreciation. It is an accounting method that assumes that depreciation is dependent on the passage of time and allocates an equal amount of depreciation.)
Depreciation Method (straight line, accounting): An accounting method by which a charge is calculated by dividing the cost, less salvage, by the number of fiscal periods of useful life
Depreciation Method (sum of the year’s digits, accounting): An accounting method that applies a changing rate to the cost, less salvage, wherein the rate is a fraction, the denominator remains fixed and equal to the sum of all the digits of the years of useful life, and the numerator decreases each year and is equal to the years of the remaining life at the beginning of the year
Depreciation Rate: The rate or percentage used to calculate the depreciation charge.
Diminished Value or Diminution in Value, or commonly referred to as "DV”, is defined loss in value / economic loss in a property's value as a result of having been damaged. Diminished Value is often associated with vehicles that have been damaged, however, it is applicable to other property of value including collectibles such as jewelry, artwork, etc. The term is mostly associated with personal property rather with real property Unlike "depreciation", which is an anticipated and predictable loss in value over time, ‘Inherent Diminished Value’ is a loss in value due to a specific, sudden and unexpected negative occurrence. Diminished value of an automobile following an accident may occur in one of three ways (or a combination thereof): * Immediate Diminished Value: Defined as the difference in resale value of a vehicle immediately before damage occurs and immediately after damage occurred to vehicle AND prior to repair. When resolving property damage claims, Inherent Diminished Value and Repair Related Diminished Value are normally used. * Inherent Diminished Value: Defined as the amount by which the resale value of a repaired asset / vehicle has been reduced solely as a consequence of the vehicle now having significant damage history. The fact that a vehicle has a damage history decreases the overall market value of the vehicle.Inherent Diminished Value does not take into consideration any additional loss of the vehicle value due to claim related or repair related diminished value. * Repair Related Diminished Value: The loss of vehicle value as a consequence of improper collision or mechanical repairs. Repair Related Diminished Value is an additional claim to the claim for inherent diminished value.
Direct Cost: All costs directly incurred in the purchase and placement of an asset into functional use
Dutiable Value: The amount on which an Ad Valorem or customs duty is calculated.
Economic Obsolescence: Sometimes called external obsolescence; the loss in value or usefulness of a property caused by factors external to the property
Economic Life: The estimated number of years that a new property may be profitably used for the purpose for which it was intended
Effective Age: The apparent age of an asset in comparison with a new as- set of like kind. (That is the age indicated by the actual condition of a property.)
Eminent Domain: The power of a public body to acquire private property for public purposes. (This process usually includes some payment of just compensation to the property owner.)
Estimated Remaining Life: The period over which an item or groups of items are estimated to remain in use; also known remaining useful life
Excess Capacity: Machinery and equipment purchased in excess of needs enabling the availability of extra capacity on a standby basis during peak usage periods or when other machinery is down for repair. (It may also be capacity that is no longer required due to a change in demand, etc.)
Exclusion (insurance): A provision in an insurance contract describing property or types of property that are excluded from coverage.
Exposure Time: Estimated length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal.
Extraordinary Assumption: An assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions. Comment: Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.
Feasibility Analysis: A study of the cost-benefit relationship of an economic endeavor.
Fixed Assets: Permanent property synonymous with capital assets, usually consisting of land, buildings, and machinery and equipment employed in rendering a service or for the production of a product
Fixture: Personal property permanently attached to real estate that has become part of the real estate
Functional Obsolescence: A form of depreciation in which the loss in value is due to factors inherent in the property itself (The cause may be changes in design, materials, or process resulting in inadequacy, overcapacity, excess construction, lack of functional utility, excess operating costs, etc.)
Goodwill: The advantage or benefit that is acquired by an establishment as a result of public patronage and encouragement, which it receives from repeat customers
Gross Profit: Gross sales less cost of goods sold
Highest and Best Use: The property use based on what is physically possible, legally permissible, financially feasible, and maximally profit- able
Historical Cost: The initial capitalized cost of an asset at the time it was first put into service.
Hypothetical Condition: A condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis. Comment: Hypothetical conditions are contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.
Income Approach: One of the three recognized approaches to value that considers the present worth of future benefits derived from ownership, measured through capitalization at a specific level of income. [This approach may utilize an annualized capitalization method or a discounted cash flow (DCF) analysis.]
Incurable Depreciation: Depreciation in the form of deterioration and obsolescence that is not economically feasible to remedy because the resulting increases in utility and value are less than the expenditure
Incurable Functional Depreciation: An element of depreciation or defect caused by a deficiency or superadequacy in the structural materials or design that cannot be practically or economically corrected
Indexing: A method used to estimate current cost in which an index factor is applied to the historical cost of an item, which reflects the movement of cost over time (See trending.)
Indirect Costs: Costs indirectly incurred when purchasing and placing an asset into use. (This may include normal administrative costs, professional fees, financing costs during construction, insurance, security, training, engineering, and others, but excludes any abnormal costs.)
Insurance Value: The value of a property covered by insurance in accordance with the terms of the policy or other agreement
Insurance Value Depreciated: The insurance replacement cost less accrued depreciation considered for insurance purposes as of a specific date and as defined in the insurance policy or other agreement
Insurance Replacement Cost New: The replacement cost new as defined in the insurance policy less the cost new of the items specifically excluded in the policy, as of a specific date.
Intangible Property (Intangible Asset): An asset having no physical existence yet having value based on rights or privileges accruing to an enterprise; nonphysical assets, including but not limited to franchises, trademarks, patents, copyrights, goodwill, equities, securities, and contracts as distinguished from physical assets such as facilities and equipment.
Intended Use: The use or uses of an appraiser’s reported appraisal or appraisal review assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment.
Intended User: The client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser on the basis of communication with the client at the time of the assignment. Jurisdictional Exception: An assignment condition established by applicable law or regulation, which precludes an appraiser from complying with a part of USPAP.
Machinery and Equipment: The physical facilities available for production including the installation and service facilities appurtenant, together with all other equipment designed for or necessary to its manufacturing and industrial purposes, regardless of method of installation, plus those items of furniture and fixtures necessary for the administration and proper operations of the enterprise.
Market Value: A type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal.
Mass Appraisal: The process of valuing a universe of properties as of a given date using standard methodology, employing common data, and allowing for statistical testing.
Mass Appraisal Model: A mathematical expression of how supply and demand factors interact in a market.
Normal Useful Life (NUL): The estimated number of years that a new property will actually be used before it is retired from service
Original Cost: The initial capitalized cost of the asset in the hands of its present owner
Personal Property: Property or assets of a temporary or movable character that are not permanently affixed to or part of real estate; also known as personalty; all property that is tangible but not real (may be subject to jurisdictional interpretation); identifiable tangible objects that are considered by the general public as being “personal” - for example, furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; all tangible property that is not classified as real estate.
Physical Deterioration: The loss in value or usefulness of a property due to the using up or expiration of its useful life caused by wear and tear, deterioration, exposure to various elements, physical stress, and similar factors
Physical Life: The number of years that a new property will physically endure before it deteriorates or fatigues to an unusable condition, purely from physical causes without considering the possibility of earlier retirement due to functional or economic obsolescence
Premise of Value: A statement identifying the definition of value that is being determined
Price: The amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding a specific transaction, which may not necessarily be equal to value; the amount asked, offered, or paid for a property.
Principle of Substitution: A theory whereby a prudent purchaser would pay no more for a property than the cost of acquiring an equally desirable substitute in the market
Property: The lawful right of ownership of future benefits from tangible and intangible assets; any asset including cash in which the title is ordinarily transferable between parties.
Purpose of the Appraisal: A statement clearly identifying the value(s) to be estimated that is consistent with the intended use of the appraisal.
Real Estate: An identified parcel or tract of land, including improvements, if any.
Real Property: The interests, benefits, and rights inherent in the ownership of real estate.
Remaining Economic Life: The estimated period during which a property of a certain age is expected to continue to be profitably used for the purpose for which it was intended
Remaining Useful Life: The estimated period during which a property of a certain effective age is expected to actually be used before it is retired from service.
Report: Any communication, written or oral, of an appraisal or appraisal review that is transmitted to the client upon completion of an assignment.
Residual Value: For a tangible asset, the term that refers to the value of an asset after expiration of its normal useful life
Residual Value (accounting): The estimated net scrap, salvage, or trade-in value of a tangible asset at the estimated date of disposal; also called salvage value or disposal value
Residual Value (lease): The value of the leased equipment at the conclusion of the lease term (To qualify as a “true lease for tax purposes, the estimated residual value of the leased equipment at the end of the lease term must equal at least 20% of the original cost of the equipment without regard to inflation. However, the lessor is not required to book any residual for financial accounting purposes.)
Sales Comparison Approach (also known as Market Comparable Approach): One of the three recognized approaches whereby recent sales and offering prices of similar assets or items of similar utility are compared to the subject item (If necessary, the com- parables are adjusted to reflect the characteristics of the subject asset. If the comparable is superior to subject, a downward adjustment is applied; if the comparable is inferior to the subject an upward adjustment is applied. The resulting adjusted sale prices give an indication of the value of the subject.)
Scope of Work: The type and extent of research and analyses in an appraisal or appraisal review assignment.
Signature: Personalized evidence indicating authentication of the work performed by the appraiser and the acceptance of the responsibility for content, analyses, and the conclusions in the report.
Tangible Assets: Physical property such as land, buildings, and machinery and equipment
Trade Fixture: Specialized fixtures utilized for the purpose of carrying on a trade or doing business, such as display cases in a retail operation (Local laws and customs may dictate the definition.)
Useful life: The period of time over which property may reasonably be expected to perform the function for which it was designed.
Valuation Services: Services pertaining to aspects of property value.
Value: The amount, relative worth, utility, or importance of an item, which may or may not be equal to price or cost.
Workfile: Documentation necessary to support an appraiser’s analyses, opinions, and conclusions.
Karatzas Marine Advisors & Co employs accredited marine appraisers and evaluators, holding Accredited Senior Appraiser (ASA) qualification by the American Society of Appraisers and Accredited in Business Valuation (ABV) by the American Institute of Certified Public Accountants (AICPA).