3.standard On Verification Adjustment of Sales PDF

Standard on
Verification and
Adjustment of Sales
Approved November 2010
International Association of Assessing Officers

The assessment standards set forth herein represent a consensus in the assessing profession and have been adopted by
the Executive Board of the International Association of Assessing Officers. The objective of these standards is to provide
a systematic means by which concerned assessing officers can improve and standardize the operation of their offices.
The standards presented here are advisory in nature and the use of or compliance with such standards is purely volun-
tary. If any portion of these standards is found to be in conflict with the Uniform Standards of Professional Appraisal
Practice (USPAP) or state laws, USPAP and state laws shall govern.
Acknowledgments
At the time of the adoption of the standard by the IAAO Executive Board, the IAAO Technical Standards Committee
was composed of Joe Hapgood, CAE, chair; Nancy C. Tomberlin; Bill Marchand; Robert Gloudemans; Mary Reavey;
Dennis Deegear; and Chris Bennett, staff liaison.
The initial draft was started in 2009. At that time the IAAO Technical Standards Committee was composed of Chair
Nancy C. Tomberlin; Joe Hapgood, CAE; Alan S. Dornfest, AAS; Bill Marchand; and Mary Reavey.
The Technical Standards Committee recognizes the contributions of Peter Davis and Richard Almy who provided valu-
able comments during exposure of the standard.
Published by
International Association of Assessing Officers
314 W 10th St
Kansas City, Missouri 64105-1616
816/701-8100
Fax: 816/701-8149
http://www.iaao.org
ISBN 978-0-88329-199-3
Copyright © 2010 by the International Association of Assessing Officers
All rights reserved.
No part of this publication may be reproduced in any form, in an electronic retrieval system or otherwise, without the prior written permission of the
publisher. However, assessors wishing to use this standard for educating legislators and policymakers may photocopy it for limited distribution.
Printed in the United States of America.

Contents 1. Scope........................................................................................................................................5
2. Introduction.............................................................................................................................5
3. Sources of Sales Data..............................................................................................................5

3.1 Real Estate Transfer Documents.............................................................................................. 5
3.1.1 Deeds and Land Contracts............................................................................................. 5
3.2 Sales Verification Questionnaires............................................................................................ 6
3.3 Buyers and Sellers...................................................................................................................... 6
3.4 Third-Party Sources.................................................................................................................... 6
4. Useful Sales Information.........................................................................................................6

4.1 Full Consideration ..................................................................................................................... 6
4.2 Names of Buyers and Sellers.................................................................................................... 6
4.3 Addresses, Phone Numbers, and other Contact Information of Buyer and Seller or
Their Legal Designee................................................................................................................ 7
4.4 Relationship of Buyer and Seller............................................................................................. 7
4.5 Legal Description, Address, and Parcel Identifier................................................................ 7
4.6 Type of Transfer........................................................................................................................... 7
4.7 Method of Marketing................................................................................................................. 7
4.7.1 Auction.............................................................................................................................. 7
4.7.2 For Sale by Owner (FSBO).............................................................................................. 7
4.7.3 Internet.............................................................................................................................. 7
4.7.4 Newspaper Advertisements.......................................................................................... 7
4.7.5 Sealed Bids........................................................................................................................ 8
4.7.6 Word-of-Mouth................................................................................................................ 8
4.8 Time on the Market.................................................................................................................... 8
4.9 Interest Transferred.................................................................................................................... 8
4.10 Type and Terms of Financing................................................................................................. 8
4.11 Personal Property.................................................................................................................... 8
4.12 Date of Transfer........................................................................................................................ 8
4.13 Deed Instrument Number...................................................................................................... 8
4.14 Unique Sale Number............................................................................................................... 8
5. Sales Verification.....................................................................................................................8
5.1 Importance of Sales Verification............................................................................................. 9
5.2 Methods of Sales Verification................................................................................................... 9
5.2.1 Additional Sales Verification Questionnaires (Other Than Mandatory
Disclosure Questionnaires Completed at the Time of Sale)...................................... 9
5.2.2 Telephone Interviews...................................................................................................10
5.2.3 Personal Interviews.......................................................................................................10
5.3 Sales Generally Considered Invalid.......................................................................................10
5.3.1 Sales Involving Government Agencies......................................................................10
5.3.2 Sales Involving Charitable, Religious or Educational Institutions.......................10
5.3.3 Sales Involving Financial Institution as Buyer.........................................................10
5.3.4 Sales Involving Financial Institution as Seller..........................................................11
5.3.5 Sales between Relatives or Corporate Affiliates......................................................11
5.3.6 Sales Settling an Estate................................................................................................11
5.3.7 Forced Sales Resulting from a Judicial Order...........................................................11
5.3.8 Sales of Doubtful Title..................................................................................................11
5.4 Sales with Special Conditions................................................................................................11
5.4.1 Trades...............................................................................................................................11
5.4.2 Partial Interest................................................................................................................11
5.4.3 Land Contracts...............................................................................................................11
5.4.4 Incomplete or Unbuilt Common Property................................................................12
5.4.5 Auction Sales..................................................................................................................12
5.5 Acquisitions or Divestments by Large Property Owners..................................................12
5.6 Multiple-Parcel Sales...............................................................................................................12
5.7 IRS Section 1031 Exchanges...................................................................................................12
5.8 Adjoining Property Owners...................................................................................................12
5.9 Leasebacks.................................................................................................................................12
5.10 Property Characteristic Changes........................................................................................13
5.11 Property Change in Use........................................................................................................13
5.12 Sales with Low and High Ratios..........................................................................................13
5.13 Short Sales...............................................................................................................................13
6. Documenting the Results of the Verification Process.........................................................13

6.1 Parcel Identification Number.................................................................................................13
6.2 Unique Sale Number................................................................................................................13
6.3 Contact Information................................................................................................................13
6.4 Conclusions/Comments..........................................................................................................14
6.5 Sales Source or Screening Codes...........................................................................................14
6.5 Validity Codes............................................................................................................................14
6.6 Name of Person Completing Form........................................................................................14
6.7 Date Form Completed.............................................................................................................14
7. Adjustments...........................................................................................................................14
7.1 Assumed Long-Term Leases...................................................................................................14
7.2 Buyer’s Closing Costs (Paid by Seller)...................................................................................15
7.3 Delinquent Taxes (Paid by Buyer)..........................................................................................15
7.4 Financing...................................................................................................................................15
7.4.1 Assumed Mortgages (Nonmarket Rates)..................................................................15
7.4.2 Gift Programs.................................................................................................................16
7.4.3 Points (Paid by Seller)...................................................................................................16
7.4.4 Seller-Financing (Nonmarket Rates)..........................................................................16
7.5 Personal Property.....................................................................................................................16
7.6 Real Estate Commissions........................................................................................................17
7.7 Repair Allowances....................................................................................................................17
7.8 Special Assessments................................................................................................................17
7.9 Time.............................................................................................................................................17
8. References..............................................................................................................................18
Definitions..................................................................................................................................19
Appendix A. Sales Verification Questionnaire........................................................................30
Appendix B. Questions for Specific Situations........................................................................31
Appendix C. Partial Listing of Governmental Agencies.........................................................32
Appendix D. Multiple Parcel Form...........................................................................................33
Appendix E. Documentation Form...........................................................................................34
Appendix F. Intangible Personal Property in Operating Properties.....................................35

Standard on Verification and Adjustment of Sales—2010
Standard on Verification and Adjustment of Sales
1. Scope 3. Sources of Sales Data

The primary responsibility of the assessor is estimating The primary sources of sales data include real estate
the market value of each property within the jurisdic- transfer documents, sales verification questionnaires,
tion. The integrity of the property tax is dependent on buyers and sellers, and third-party sources.
the accuracy of these estimates of market value. This is
accomplished by analyzing market data to determine the
price that the property being appraised would probably 3.1 Real Estate Transfer Documents
bring in the marketplace on the date of appraisal. Ap- Real estate transfer documents include deeds, sales con-
praisal accuracy refers to the degree to which properties tracts, and transfer affidavits (i.e., land contracts, con-
are appraised at market value, as defined by professional tract for deed) completed at the time of sale. Some juris-
standards (see the IAAO Glossary for Property Appraisal dictions require recordation of transfer documents, and
and Assessment [IAAO 1997] and the IAAO Standard on some do not (see the results of the 2008 Survey of Ratio
Ratio Studies [IAAO 2010]). This standard provides guid- Study Practices [Technical Standards Committee 2009]).
ance to ensure that only sales that meet the definition of
market value and that have been adjusted for any mon- 3.1.1 Deeds and Land Contracts
ies (including financing) not attributable to the real A deed is a written legal instrument that, when duly exe-
estate are used in developing these estimates of market cuted, conveys an interest in the legal title to a property.
value. Accuracy is dependent upon proper verification The general warranty deed provides the highest level of
and adjustment of sales data. protection to the buyer and establishes that the seller
owns the property and has the legal right to sell it. Un-
2. Introduction less stated specifically in the deed, the property is free
of any liens or encumbrances; the buyer is guaranteed
Sales data should be collected, verified, and adjusted
the title will stand against third parties attempting to es-
as necessary for model calibration and ratio study pur-
tablish title to the property; and the seller promises, in
poses. In some cases, sales may be valid for model cali-
order to make the title good, he or she will deliver any
bration but should not be considered valid for ratio
document or instrument necessary.
study purposes. A verified sale is more reliable than an
unverified sale. A special warranty deed is not nearly as protective as the
general warranty deed in that the seller warrants he or
In jurisdictions that do not have laws mandating full dis-
she has received title and ensures the property was not
closure of sales data, assessing officials work under a se-
encumbered during his or her ownership.
vere handicap and should seek legislation that provides
for such disclosure (see the results of the 2008 Survey Bargain and sale deeds implicitly or explicitly assert the
of Ratio Study Practices [Technical Standards Committee grantor’s ownership of the property conveyed, but they
IAAO 2009]). In addition, jurisdictions that have disclo- make no guarantee to defend the title. They provide the
sure but not adequate sale disclosure documents should grantee with more protection than a quitclaim deed but
work toward that goal. The terminology for determin- less than a special warranty deed. The words of convey-
ing whether or not a sale meets the definition of a valid ance “bargain and sale” distinguish a bargain and sale
transaction differs throughout the industry (validation, deed.
verification, confirmation, qualification, screening, and
A deed in which the grantor conveys or relinquishes all
so on); however, for purposes of this standard, the term
interests in a property without warrant as to the extent
verification is used. It is important to remember that all
or validity of such interests is known as a quitclaim deed.
sales should be considered candidates as valid sales un-
The quitclaim deed is the least protective deed for the
less sufficient information can be documented to show
buyer and conveys only whatever rights or interests the
otherwise. While it is imperative that sales be verified
grantor has in the property. There are no warranties or
uniformly and accurately, it is also important to process
covenants to the buyer. If the grantor has a good title, it
and verify sales in a timely manner so they are available
is as good as the warranty deed; however, there are no
for analysis. Sales should be trimmed for outliers during
warranties or guarantees.
the statistical phase, not during the verification phase of
a mass appraisal or sales ratio study program. Tax deeds (Sheriff, Marshalls) are deeds by which title
to real property, sold to discharge delinquent taxes, is
transferred by a tax collector or other authorized officer
of the law to the purchaser at a tax sale.
5
Trust deeds transfer the title to the property to a trustee to 4. Useful Sales Information
be held in trust. These deeds are also known as deeds of It is important to obtain the following information in
trust. There are three parties involved in a deed of trust: the sales verification and adjustment process:
the trustor (borrower), trustee (holder of the legal ti-
tle), and the beneficiary (lender). The trustee holds the • Full consideration
power of sale in the event of default.
• Names of buyer and seller
Land contracts are executory contracts for the purchase
• Addresses, phone numbers, and other contact
of real property under the terms of which legal title to
information of buyer and seller or their legal
the property is retained by the seller until such time as all
designee
the conditions stated in the contract have been fulfilled.
These contracts are commonly used for the installment • Relationship of buyer and seller (if any)
purchase of real property and are often referred to as a
• Legal description, address, and parcel identifier
contract for deed. The actual deed is not recorded un-
til the title passes to the buyer upon fulfillment of the • Type of transfer
contract. • Method of marketing
• Time on the market
3.2 Sales Verification Questionnaires
Sales verification questionnaires, which can be written • Interest transferred
or in electronic format, are affirmed or sworn state- • Type and terms of financing
ments regarding the sale of the property. Typically,
these forms are required to be completed prior to re- • Personal property (if any)
cordation of the deed. A more comprehensive ques- • Date of sale (transfer)
tionnaire may limit the need for follow-up verification
• Deed instrument number
of the sale. (See Appendix A for a copy of a sales verifi-
cation questionnaire. Also, refer to the ratio study sur- • Unique sale number.
vey results [Technical Standards Committee 2009] for These data elements should be maintained in a separate
the number of jurisdictions currently using a compre- data file or sales history file component of a computer-
hensive sales verification form.) A set of instructions assisted mass appraisal (CAMA) system. In addition, the
for completing the form should accompany or be a file should include information useful for stratification
part of the questionnaire. and other analytical purposes. Sales data files should re-
flect the physical characteristics of the property at the
3.3 Buyers and Sellers time of sale. If significant legal, physical, or economic
changes have occurred between the sale date and the as-
Buyers and sellers of real property should be contacted
sessment date, the sale should not be used for ratio stud-
directly to secure or confirm sales data.
ies. The sale may still be valid for mass appraisal model-
ing by matching the sale price against the characteristics
3.4 Third-Party Sources that existed on the date of sale.
Third-party sources are a source of sales data and are
especially important when transfer and disclosure docu-
4.1 Full Consideration
ments do not provide full disclosure or omit important
Full consideration is the total amount paid for the prop-
data. A partial listing of third-party sources includes the
erty, including the cash down payment and amounts fi-
following.
nanced. The actual sale price is the most essential item
• Multiple listing services of information concerning the sale, and its accuracy
should be carefully scrutinized. In many jurisdictions it
• Title companies is common practice in deeds of conveyance to state con-
• Financial institutions siderations in terms such as “one dollar plus other due
and just consideration.” These amounts are rarely the
• Leasing agencies actual selling price and should be ignored in favor of
• Property managers information from the buyer and seller or other reliable
source, such as sales verification questionnaires.
• Real estate brokers and agencies
• Government and private fee appraisers
4.2 Names of Buyer and Seller
• Attorneys This information permits the assessor to maintain a
• Appraisal organizations. current record of the owners of all property in the juris-
6
diction. Transfer documents often refer to the buyer as cally, when a comprehensive sales verification question-
the grantee or transferee and the seller as the grantor naire is completed, no further verification is required if
or transferor. no factors exist that would require further verification
and/or adjustment. Additional marketing methods are
listed below.
4.3 Addresses, Phone Numbers, and other
Contact Information of Buyer and Seller or • Auctions
Their Legal Designee • For sale by owner (FSBO)
This information helps to identify more positively the
• Internet marketing
parties to the sale. If the buyer will not reside at the
property, the buyer’s address may be needed for future • Newspaper advertisements
correspondence. If the seller has established a new ad-
• Sealed bids
dress, this information aids the assessor in contacting
the seller regarding the sale. • Word-of-Mouth.
4.7.1 Auction
4.4 Relationship of Buyer and Seller An auction is a method of marketing and selling real
Any close relationships including marital between in- property, and verification should be made prior to in-
dividuals (parents, children, aunts, uncles, nephews, cluding the sale as a valid transaction (see Section 5.4.5).
nieces, grandparents) or corporate relationships be- Auction sales are typically more prevalent in rural areas.
tween businesses should be discovered, because sales The auctioneer is the best contact for verification; then
between related parties may not reflect market value the seller. Rarely is the buyer able to provide all the nec-
(see section 5.3.5). essary information.
4.5 Legal Description, Address, and Parcel 4.7.2 For Sale by Owner (FSBO)
For sale by owner (FSBO) marketing may be defined as
Identifier the process of selling real estate without the representa-
Each parcel should be assigned a unique parcel iden- tion of a real estate broker or agent. The seller may employ
tifier (see Standard on Digital Cadastral Maps and Parcel the services of a marketing or online listing company or
Identifiers [IAAO 2009]. If this number is noted on the may actively market their own property. A sale meeting
document at the time it is recorded, the assessor can these marketing criteria may be considered as a poten-
locate the parcel in the file directly. This information tially valid transaction.
links the sale to the assessor’s records and identifies the
property’s location. Without careful matching of the 4.7.3 Internet
parcel identifier with the legal description, the wrong
Property that sells on the Internet and meets the crite-
appraised or assessed value may be used in a ratio study
ria of being an open-market, arm’s-length transaction
and the incorrect set of parcel characteristics may be
should be included as a valid transaction. Brokerage
transferred to the sales history file. The legal description
and realty firms are using the Internet as an additional
also helps identify parcel splits, which are not usable in
method for advertising and marketing their inventory
ratio studies. This information also may be used to pre-
of properties. All sales require diligent verification. In
vent sales from being included twice. The situs address
the case of Internet sales, the primary focus should be
can be useful in locating and confirming the physical
whether the parties to the sale are informed buyers and
location of a parcel in the field.
sellers. Indicators of an uninformed buyer could include
one or more of the following:
4.6 Type of Transfer
• No knowledge of the market in the area in
The type of transfer document often helps determine which the property was purchased
whether the sale is usable. If the source of sales data does
not include a copy of the transfer document, the type • No broker/realtor involved
of transfer document should be specifically required. • No other similar properties in the area exam-
A warranty deed, for example, is generally associated ined
with a usable sale; sheriff’s deeds are not; and quitclaim
deeds are questionable while contracts for deed and • Bought sight unseen.
certain transfer affidavits may require an adjustment for
financing (see Section 7.4.4). 4.7.4 Newspaper Advertisements
A newspaper advertisement is a method of marketing
real property and requires no further verification if a
4.7 Method of Marketing comprehensive sale’s validation questionnaire has been
Property that is listed with a real estate broker is the completed and no factors exist that would require fur-
most prevalent method of marketing real property. Typi- ther verification and/or adjustment.
7
4.7.5 Sealed Bids 4.10 Type and Terms of Financing

Verification of sales of properties that are marketed and Certain types of financing can affect the sale price. The
sold by sealed bids should follow the guidelines for prop- information needed to determine the amount of adjust-
erty that is sold by auction (see Section 5.4.5); it is also ment to the sale price includes the amount of the down
important to discover how many bids were received. If payment, type of loan, interest rate, amortization pro-
only one bid was offered and no fee appraisal was made visions, and the type and value of any trade. It is also
on the property, the sale should not be considered important to know whether the sale conveys title to the
a valid transaction. If a fee appraisal was made on the property or whether it is a land contract, in which title
property and the bid was within a typical range, the sale is not conveyed until sometime in the future, typically
may be considered a valid transaction especially when several years.
sample sizes are small.
4.7.6 Word-of-Mouth 4.11 Personal Property

Word-of-mouth marketing is typically more prevalent The sales verification questionnaire should note the type
in rural areas. This method of marketing real property and value of any significant personal property (both tan-
requires verification to answer the following questions: gible and intangible listed separately) included in the
sale price.
• How did the buyer discover the property was
for sale?
4.12 Date of Transfer
• How widely was the property marketed? This is the date on which the sale was closed or complet-
• Is word-of-mouth typical exposure for the area? ed. Not all jurisdictions require recordation of deeds;
therefore, the deed date should be considered the most
• How was the sale price determined? reliable date of sale, not the recording date. If a copy of
• Was a fee appraisal made on the property, and the deed is not available, the date on the sales verifica-
if so, what was the amount? tion questionnaire should be used.
• What was the condition of the property at the

time of sale? 4.13 Deed Instrument Number
The deed instrument or document number, as well as
• Was the seller actively marketing the property
the record or deed book and page, indicates where the
at the time of sale?
deed is located in the official records and is an impor-
Since the buyer would not be able to provide an answer tant asset in researching sales and leases.
to the majority of these questions, the seller is the best
source of information.
4.14 Unique Sale Number
A unique sale number can tie a sale validation question-
4.8 Time on the Market naire to a particular parcel and eliminate confusion
Sales of properties that have been exposed to the open if the parcel sells more than once. A unique number
market too long, not long enough, or not at all may not should be assigned to sales verification questionnaires
represent market value. The jurisdiction should moni- completed at the time of recordation of the deed. Legis-
tor typical marketing time. The typical marketing time lation requiring that the sales verification questionnaire
may be longer in a depressed market. be provided at the time of deed recordation provides
leverage in ensuring the form is completed properly, a
4.9 Interest Transferred unique number is applied, and each transfer is account-
ed for. For electronic reporting to oversight agencies,
A transaction that conveys the full rights of ownership
this unique number could then be tied to the jurisdic-
to a property is known as a fee simple transfer. Fee simple
tion’s identification number and parcel identification
is defined in land ownership as the complete interest
number.
in a property, subject only to governmental powers such
as eminent domain. Transfers that convey less than full
interest are rarely usable in mass appraisal or in ratio 5. Sales Verification
studies without adjustments, unless the appraised value Sales should be verified to determine whether they re-
and sale price reflect the same ownership rights. Exam- flect the market value of the real property transferred.
ples of partial interest transfers include sales involving Specific objectives for sales verification include but are
life estates, encumbered leases, fractional interest, and not limited to the following:
mineral rights.
• Sale prices reflect only the market value of the
real property transferred and not the value of
personal property, financing, or leases.
8
• Sales occurred during the time frame being from parties to the sale. Historically, people consent to
tested or modeled. interviews if they know what is expected of them; under-
stand the importance of the request; and, are treated
• Sales are excluded only when they fail to meet
with respect. When sales data are not available on trans-
the requirements of an open-market, arm’s-
fer documents, disclosure documents, are incomplete,
length transaction.
or require further verification, parties to the transaction
All sales meeting the definition of market value should may be contacted using the following methods.
be included as valid transactions unless one of the fol-
lowing two conditions exists: • Sales verification questionnaires (other than the
mandatory disclosure questionnaire completed
• Data for the sale are incomplete, unverifiable, at time of sale)
or suspect.
• Telephone interviews
• The sale fails to pass one or more specific tests
of acceptability. • Personal interviews.
Although all sales should normally be verified for use in Comprehensive sales verification questionnaires reduce
modeling and appraisal analyses, for ratio studies a sub- the number of follow-up verifications required but do
set of sales can be selected for verification if the verified not totally eliminate them. Sales information should
sales provide a sufficiently representative sample for pur- never be considered absolutely trustworthy. An ideal
poses of the study (see Standard on Ratio Studies [IAAO sales verification system would provide a mechanism for
2010] for discussion on representative samples). the accurate and timely completion of the sales verifica-
tion questionnaire. One of the above methods should
The position should be taken that all sales are candi- be used when a question remains unanswered or there
dates as valid sales unless sufficient information can be are other questions regarding a sale.
documented to show otherwise. If sales are excluded for
ratio studies without substantiation, the study may ap- For both telephone and personal interviews, it may be
pear to be subjective. Reason codes may be established necessary to provide verification of the purpose of the
for valid and invalid sales for both ratio studies and mod- interview. The contact person should be ready to supply
el calibration. names and a phone number of a supervisor or human
resource contact who can verify their employment and
No single set of sales screening rules or recommenda- the purpose of the contact.
tions can be universally applicable for all uses of sales
data or under all conditions. Sales verification guidelines Preparing a list of basic questions for staff to ask during
and procedures should be consistent with the provisions the interview ensures uniformity and consistency and
of the value definition applicable to the jurisdiction. As- often leads to discovery of problems regarding the trans-
sessors should use their judgment, but they should not action. Specific questions should be prepared and staff
be arbitrary. For uniform judgments, verification pro- trained for sales involving the following (see Appendix B
cedures should be in writing. All personnel should be for examples of questions for specific situations):
thoroughly familiar with these procedures as well as with
• Adjoining property owner
underlying real estate principles (Tomberlin 2001).
• Auctions
5.1 Importance of Sales Verification • Internet marketing

Sales data are needed for the valuation process and for • Leasebacks
sales ratio studies. The reliability of any valuation model
or sales ratio study depends on the quality and quantity • Personal property
of its data. Sales data should be collected, edited, and • Property characteristic changes
adjusted to obtain valid indicators of market value. Sales
data should be verified by contacting a party to the sale • Related parties
(buyer, seller, or other knowledgeable party) when there • Sealed bids
is a question or an answer is unclear on a sales question-
naire completed prior to the recordation. In general, • Uninformed buyers and sellers
the fewer the sales, the less common or more complex • Word-of-mouth
the property, and the more atypical the sale price, the
• IRS 1031 Exchanges.
greater the effort should be to confirm the particulars
of the sale. 5.2.1 Additional Sales Verification Questionnaires
(Other Than Mandatory Disclosure
5.2 Methods of Sales Verification Questionnaires Completed at the Time of Sale)
In general, the completeness and accuracy of sales data While mailing sales verification questionnaires may be
are best confirmed by requesting the particulars of a sale the least expensive method of obtaining or verifying in-
9
formation subsequent to the sale, there are several dis- ed upon introduction. All paperwork and forms should
advantages, as follows: be available and in order before the interview begins.
The style and tone of the conversation should be geared
• Response is not immediate. to the interview setting. It can sometimes be helpful to
• Additional contact may be needed. establish rapport through brief small talk. Maintain eye
contact, smile, and be friendly and respectful through-
• Information is limited to what is stated on the out the conversation.
sales verification questionnaire.
• Printing and mailing costs are incurred.
5.3 Sales Generally Considered Invalid
Mailed sales verification questionnaires should be as The following types of sales are often found to be in-
concise as possible and should include the following: valid and can be excluded unless a larger sample size
• Postage-paid return envelope is needed. If a larger sample size is needed, these sales
require verification.
• Official stationery
• Sales involving government agencies
• Purpose of the sales verification questionnaire
• Sales involving charitable, religious, or educa-
• Contact person (name, telephone number and tional institutions
e-mail address for additional information)
• Sales involving financial institutions as buyer or
• Authorized signature (of person completing seller
the questionnaire)
Specialized questionnaires may be designed for a spe- • Sales between relatives or between corporate
cific type of property or situation such as an income affiliates
producing property or a property that sells with atypi- • Sales settling an estate
cal financing. Specialized questionnaires can be devel-
oped for numerous situations; however, all should follow • Forced sales resulting from a judicial order
the guidelines for the regular questionnaire suggested • Sales of doubtful title
above.
5.3.1 Sales Involving Government Agencies
5.2.2 Telephone Interviews Sales to government agencies can involve an element
Telephone interviews provide quick responses and the of compulsion and often occur at prices higher than
opportunity for immediate clarification. Disadvantages would otherwise be expected. When the governmental
are as follows: agency is the seller, values typically fall on the low end
of the value range. The latter should not be considered
• Inability to prove caller’s identity in model calibration or ratio studies unless an analysis
• Need for trained staff indicates governmental sales have affected the market
in specific market areas or neighborhoods. Each sale in
• Difficulty in reaching the party to the sale. this category should be thoroughly researched prior to
An opening script should be written for telephone inter- use. See Appendix C for a listing of some of the govern-
views. Always state your name, the office you represent, ment agencies in this category.
and the purpose of the telephone call. If the individual is
unable to talk, ask for a specific time that would be more 5.3.2 Sales Involving Charitable, Religious or
convenient. It is extremely important to use simple con- Educational Institutions
versational words and avoid slang and industry jargon. A sale to such an organization can involve an element
Interviews should be short, courteous, and to the point. of philanthropy, and a sale by such an organization can
involve a nominal consideration or restrictive covenants.
5.2.3 Personal Interviews These sales often involve partial gifts and therefore are
The disadvantages of the in-person interview are they generally not representative of market value.
are the most costly and qualified analysts or appraisers
should perform this task. However, they are most effec- 5.3.3 Sales Involving Financial Institution as
tive for the following reasons: Buyer
• Refusals less frequent These sales are often made in lieu of foreclosure and are
not exposed to the open market. However, open-market
• Information more reliable sales in which a financial institution is a willing buyer,
• More unusual or special considerations revealed. such as the purchase of vacant land for a branch bank,
may be considered potentially valid transactions.
For personal interviews it is critical to be on time. An
identification badge or business card should be present-
10
5.3.4 Sales Involving Financial Institution as deed, there is a question of whether the title is mer-
Seller chantable. A quitclaim deed is an example.
A foreclosure is not a sale but the legal process by
which a lien on a property is enforced. The majority of 5.4 Sales with Special Conditions
the sales in which the financial institution is the seller Sales with special conditions can be open-market trans-
are properties that were formerly foreclosed on by the actions; however, they should be verified thoroughly.
financial institution. Also, they are easily identified be- The following are types of sales with special conditions.
cause the seller is the financial institution. These sales
typically are on the low side of the value range because • Trades
the financial institution is highly motivated to sell and
• Partial interests
may be required by banking regulations to remove the
property from its books. The longer the property is car- • Land contracts
ried on the books by the financial institution, the lower
• Incomplete or unbuilt common property
the asking price is likely to be. If the financial institu-
tion was ordered by banking regulators to dispose of the • Auctions
property regardless of the sale price, the sale should not
be included as a valid transaction. 5.4.1 Trades
In a trade, the buyer gives the seller one or more items
Sales in which a financial institution is the seller typically of real or personal property as all or part of the full
should be considered as potentially valid for model cali- consideration. If the sale is a pure trade with the sell-
bration and ratio studies if they comprise more than 20 er receiving no money or securities, the sale should be
percent of sales in a specific market area. Care should be excluded from analysis. If the sale involves both money
taken in validating this type of sale to account for changes and traded property, it may be possible to include the
in property characteristics (see Section 5.10). Any prop- sale in the analysis if the value of the traded property is
erties that have been vandalized should be excluded. stipulated, can be estimated with accuracy, or is small in
comparison to the total consideration. However, trans-
5.3.5 Sales between Relatives or Corporate actions involving trades should be excluded from the
Affiliates analysis whenever possible, particularly when the value
Sales between close relatives (parents, children, aunts, of the traded property is substantial.
uncles, nephews, nieces, grandparents) or corporate af-
filiates are usually non-open-market transactions. If the 5.4.2 Partial Interest
following factors apply during the follow-up verification, A sale involving a conveyance of less than the full interest
the sale may be considered a valid transaction. in a property should be excluded as a valid transaction.
Sometimes all the partial interest owners of a property
• The property was exposed on the open market.
may agree to syndication and sell their portions of the
• The asking and selling price was within the estate to a buyer (typically on the same day). However,
range that any party purchasing the property the sum of all the sale prices may not necessarily indicate
would be expected to pay. the market value of the whole property. These transfers
should not be used as valid sales without thorough test-
• The sale meets all other criteria of being an
ing, analysis, and documentation.
open-market, arm’s-length transaction.
5.3.6 Sales Settling an Estate 5.4.3 Land Contracts

A conveyance by an executor or trustee under powers Land contracts (also known as contracts for deeds) and
granted in a will may not represent fair market value, other installment purchase agreements in which title
particularly if the sale takes place soon after the will has is not transferred until the contract is fulfilled require
been filed and admitted to probate in order to satisfy the careful analysis. Deeds in fulfillment of a land contract
decedent’s debts or the wishes of an heir. often reflect market conditions several years in the past,
and such dated information should not be considered.
5.3.7 Forced Sales Resulting from a Judicial Sales data from land contracts also can reflect the value
of the financing arrangements. In such instances, if the
Order
transaction is recent, the sale price should be adjusted
These sales should never be considered for model cali- for financing, if warranted, and included as a valid trans-
bration or ratio studies. The seller in these sales is usu- action (see Section 7.4.4). Because the contract itself
ally a sheriff, receiver, or other court officer. often is not recorded, discovery of these sales is difficult
until the deed is finally recorded. The sale then is likely
5.3.8 Sales of Doubtful Title to be too old to be used.
Sales in which title is in doubt tend to be below mar-
ket value. When a sale is made on other than a warranty
11
5.4.4 Incomplete or Unbuilt Common Property For example,

Sales of condominium units and of units in planned unit
Parcel No. Appraised Value Sale Price
developments or vacation resorts often include an inter-
est in common elements (e.g., golf courses, clubhouses, 001 $ 150,000
or swimming pools) that may not exist or be usable on 002 50,000
the date of sale or on the assessment date. Sales of such 003 100,000
properties should be examined to determine whether Total $ 300,000 $315,000
prices might be influenced by promises to add or com-
plete common elements at some later date. Sales whose
prices are influenced by such promises should be ex- 5.7 IRS Section 1031 Exchanges
cluded or the sales price should be adjusted to reflect Internal Revenue Service (IRS) Code Section 1031 stip-
only the value of the improvements or amenities in exis- ulates that investment properties can be sold on a tax-
tence on the assessment date. deferred basis if certain requirements are met. These
transactions enable the taxpayer to defer capital gains
5.4.5 Auction Sales tax on the sale of a business use or investment property.
In general, auction sales of real property tend to be at All net equity must be reinvested in a certain time peri-
the lower end of the price spectrum and are more preva- od. A certain amount of undue stimuli may be present as
lent in rural areas. Absolute auctions do not have a low this time period lapses. Sale transactions that represent
bid clause or right of refusal and typically are advertised Section 1031 exchanges should be analyzed like any oth-
as absolute auctions. The property is sold to the higher commercial transaction and, absent conditions that
est bidder whatever that bid may be. All absolute auc- would make the sale price unrepresentative of market
tions should be considered invalid. Before auction sales value, should be considered valid sales.
should be considered as valid transactions, the following
criteria should be met. 5.8 Adjoining Property Owners
• Was the auction well-advertised? Sales in which the buyer already owns adjoining prop-
erty should be examined carefully to determine wheth-
• Was the auction well-attended? er or not the buyer possibly paid more or less than the
• Did the seller have a minimum bid or the right property is worth on the open market. In some cases be-
of refusal on all bids (with reserve)? cause of the neighbor relationship, the buyer may even
receive a deal on the property. These sales should not be
excluded solely because the buyer owns adjoining prop-
5.5 Acquisitions or Divestments by Large erty unless one or more of the following reasons exists:
Property Owners
Acquisitions or divestments by large corporations, pen- • Buyer is willing to pay more than the asking
sion funds, or real estate investment trust (REITs) that price.
involve multiple parcels typically should not be consid- • Buyer is willing to pay more than the fee ap-
ered for analysis. praisal.
• Selling price is substantially less than the asking
5.6 Multiple-Parcel Sales price.
A multiple-parcel sale is a transaction involving more
• Buyer is under undue stimuli to purchase the
than one parcel of real property. These transactions
adjoining property.
present special considerations and should be researched
and analyzed prior to being used for valuation or ratio
studies. 5.9 Leasebacks
A leaseback is defined as the sale of a building, land, or
If the appraiser needs to include multiple-parcel sales,
other property to a buyer under special arrangements
it should be determined whether the parcels are con-
for simultaneously leasing it on a long-term basis to
tiguous and whether the sale is a single economic unit
the original seller, usually with an option to renew the
or multiple economic units. Regardless of whether the
lease. These transactions are also referred to as sale and
parcels are contiguous, any multiple-parcel sale that in-
leaseback and sale-leaseback. Leasebacks occur in the com-
volves multiple economic units generally should not be
mercial and industrial class of property. Sales involving
used in valuation or ratio studies.
leasebacks are generally invalid because the sale price is
The sum of the appraised values for the parcels involved unlikely to represent the market value of the property.
in the transaction should be compared to the total sale This can be determined only by further verification of
price (see Appendix D for a copy of a multiple-parcel the sale (see Appendix B for questions involving lease-
form.) backs).
12
Typically, the land and location is purchased, the build- than a foreclosure. A short sale is nothing more than
ing erected, and the property sold with a long-term negotiating with lien holders a payoff for less than what
leaseback clause. A major benefit of the leaseback is they are owed, or rather a sale of a debt on a piece of real
cash-flow issues. estate short of the full debt amount. It does not extin-
guish the remaining balance unless settlement is clearly
indicated on the acceptance of offer. As with all foreclo-
5.10 Property Characteristic Changes sure-related sales, the element of undue stimuli exists.
Sales data files should reflect the physical characteristics Therefore these sales should be treated like other fore-
of the property when sold. For ratio studies, if significant closure-related sales and considered for model calibra-
physical changes have occurred to the property between tion and ratio studies when, in combination with other
the date of sale and the appraisal date, the sale should foreclosure-related sales, they represent more than 20%
not be included. The sale may still be valid for mass ap- of all sales in the market area, but only after a thorough
praisal modeling by matching the sale price to the char- verification process of each sale. Again, care should be
acteristics that existed on the date of sale. For consisten- taken when validating these types of sales to account for
cy in application, written guidelines should be provided changes in property characteristics (see Section 5.10).
as to what constitutes significant change. For example,
an improvement of $3,500 may not be significant for a
property with a selling price of $255,000 (1.4 percent), 6. Documenting the Results of the
but is significant for a property selling for $21,000 (16.7 Verification Process
percent). A documentation form, preferably in electronic format,
should be completed for all sales that have had a follow-
5.11 Property Change in Use up verification and the form should become part of the
sales file (see Appendix E for an example of a documen-
In conducting ratio studies property in which the use
tation form). Helpful items on the form are listed below.
has changed between the date of appraisal and the date
of sale should be excluded from further analysis. How- • Parcel identification number
ever, the sale may be used for analytical purposes if it
can be matched with its use and physical characteristics • Unique sale number
at the time of sale. • Contact information
• Conclusions/comments
5.12 Sales with Low and High Ratios • Sales source or screening codes
It is a best practice to set parameters for further verifica-
tion on sales with extreme high or low ratios (e.g., less • Validity codes
than 50 percent or greater than 150 percent). Such atyp- • Name of person completing the form
ical ratios may be the result of problems that warrant
further investigation. However, during sales verification • Date the form was completed
sales should never be excluded from a ratio study solely Documentation forms should be completed at the time
on the basis of the computed ratio. If no problems are each sale has been verified to limit the loss of valuable
discovered with the sale, it will likely be identified as an information or the possibility of mixing information
outlier and be subject to removal during the statistical from different transactions. It is far better to over-doc-
trimming process. ument than under-document to eliminate the need for
additional follow-up contacts.
5.13 Short Sales
Short sales are difficult to recognize because the parties 6.1 Parcel Identification Number
to the sale are typical buyers and sellers. In a short sale, The parcel identification number is the numeric or
the lien holder agrees to accept a payoff for less than alphanumeric description of a parcel that identifies it
the outstanding balance of the mortgage or loan. This uniquely.
negotiation is achieved through communication with
a bank’s loss mitigation or workout department. The
homeowner or debtor sells the mortgaged property for 6.2 Unique Sale Number
less than the outstanding balance of the loan and turns Unique sale numbers tie a specific sale to a parcel(s)
over the proceeds of the sale to the lender. In such in- and eliminate problems caused by parcels with multiple
stances, the lender would have the right to approve or sales.
disapprove a proposed sale. Extenuating circumstances
influence whether or not banks will discount a loan bal- 6.3 Contact Information
ance. These circumstances are usually related to the cur-
Contact information includes the name of the person
rent real estate market and the borrower’s financial situ-
interviewed, their role in the transaction (buyer, seller,
ation. A short sale is typically faster and less expensive
13
other), a telephone number (also e-mail address, if • Assumed long-term leases (nonmarket rates)
available). The record should contain space or fields to
• Buyer’s closing costs (seller paid)
record multiple contact attempts (date, time, and out-
come). At least three contact attempts should be made • Delinquent taxes (paid by buyer)
on different dates and times before declaring the verifi-
• Financing (nonmarket rates)
cation effort unsuccessful.
• Gift programs
6.4 Conclusions/Comments • Personal property (paid by buyer)

Verification results should be accurately documented. • Real estate commissions
Too much information is better than insufficient docu-
mentation. Professionalism in completing the form is • Repair allowances
important because of all the possible uses of the form in- • Special assessments
cluding helping to resolve possible differences of opin-
ion between local and oversight agencies regarding the • Time
validity of sales. This is especially true for nonresidential properties. The
real property tax is based on the market value of real
property alone as of a specific date. This value may not
6.5 Sales Source or Screening Codes be the same as investment value (i.e., the monetary val-
Sales source or screening codes are used to identify the ue of a property to a particular investor) and does not
source of the sales information or how the sale was veri- include the value of personal property or financing ar-
fied and are separate from the validity code. Screening rangements.
codes afford the user the ability to extract data for fur-
If adjustments for more than one purpose are to be
ther stratification. These codes are especially beneficial
made, they should be made in the following order:
during changes in the market or when specific situations
require tracking. They also allow the user of the data to 1. Adjustments that convert the price to a better
identify those sales for which follow-up verifications have representation of the market value as of the date
been made; multiple-parcel sales; specific uniqueness of sale (these include adjustments for financing,
of the sale such as foreclosure-related sales and partial assumed long-term leases, and special assess-
interest sales (Tomberlin 2001). Also see Appendix E ments).
for an example of source codes on the Documentation
Form example. 2. Adjustments that develop or isolate the price
paid for taxable real property (these include ad-
justments for personal property received by the
6.6 Validity Codes buyer, property taken in trade by the seller, the
Even more important than the source codes are codes combination of partial interest sales, delinquent
to document the validity of the sale. Codes should be real estate taxes, and incomplete or unbuilt com-
assigned to indicate whether a sale is valid and, if not, mon property).
the reason for exclusion or adjustment. See Appendix E
3. Adjustments for differences in market value levels
for an example of validity codes on the Documentation
between the date of sale and the date of analysis
Form example.
(time trends).
6.7 Name of Person Completing the Form 7.1 Assumed Long-Term Leases (Nonmarket
The name of the person completing the form should Rates)
be on the form in case there is a question or unresolved
When a property is encumbered by a lease, the buyer
problem regarding the sale.
receives the right to the contract rent stated in the
lease. The sale price reflects the relative desirability of
6.8 Date Form Completed this lease. The sale price of a property encumbered by a
The form should be dated to ensure interview dates are long-term lease of at least three years should be adjust-
consistent with the completion date on the form. ed if the contract rent differs significantly from market
rent. The sale price should be adjusted by the difference
between the present worth of the two income streams.
7. Adjustments
If the contract rent exceeds market rent, the pres-
Sales should be adjusted to represent only the value of
ent worth of the difference in the two income streams
the real property as of the assessment date prior to mod-
should be subtracted from the sale price.
el calibration and ratio studies. Adjustments to the sale
price may be considered if any of the following exist.
14
Example 1: Long-Term Lease Adjustment 7.4 Financing
Sale price $500,000 The market value of property is its most probable sell-
Monthly contract rent $6,000 ing price in terms of cash or the equivalent. Sale prices
Monthly market rent $5,000 Use monthly tables that reflect prevailing market practices and interest rates
Years remaining on lease 5 require no adjustment for financing. Under such condi-
Discount rate 12% tions, neither the buyer nor the seller gains any advan-
tage as a result of the manner of financing; hence, there
The difference between the market and contract rent is $1,000.
is no reason for the sale price to differ significantly from
The present worth of 1 per period for five (5) years @ 12 percent ($1,000 x
its cash value. Because of different financing arrange-
44.95504) = $44,955
ments, the sale price of one property may be different
This is the present worth of monthly savings.
from the sale price of another that is virtually identical.
Adjusted sale price = $500,000 (sale price) minus $44,955 (monthly savings)
If a sale is adjusted for atypical financing, this adjustment
or $455,045
should be made before any other adjustments are made.
When the contract rent is less than current market rent, After the sale price has been adjusted for financing, it
the present worth of the difference in the two income becomes the appropriate sale price to use as the basis for
streams should be added to the sale price. further adjustments. Adjustments for financing require
Example 2: Long-Term Lease Adjustment data on actual and market interest rates, the amount of
the loan, and the term and amortization provisions of
Sale price $100,000
the loan. Obtaining and properly analyzing such data,
Monthly contract rent $1,000
as well as estimating the extent to which the market ac-
Monthly market rent $1,200 tually capitalizes nonmarket financing, are difficult and
Years remaining on lease 5 time-consuming and require specialized skills.
Discount rate 11%
Typically, new loans from financial institutions are at the
The difference between the market and contract rent is $200 per month for prevailing market rates and for seller-financing, rates
five (5) years capitalized at 11 percent (monthly tables) can be higher (for a lower sale price) or lower (for a
$200 x 45.99303 (present worth 1/p factor @ 11% or $9,198.60 higher sale price). Sales prices should be adjusted when
This is the portion of the present worth of the property that the buyer cannot the rates are above or below market rates.
realize and that consequently should be added to the sale price to determine
the full cash value of the property as indicated by the sale. Adjustments for financing should be considered if the
The indicated full cash value is $100,000 + $9,199 or $109,199. sale contains any of the following atypical financing:
• Assumed mortgages (nonmarket rates)

7.2 Buyer’s Closing Costs (Paid by Seller) • Gift programs
Closing costs are settlement fees and expenses incurred
in transferring property ownership that are paid at the • Points (paid by the seller)
real estate closing. Expenses charged commonly include • Seller-financing (nonmarket rates).
the following (these vary among the various jurisdictions
The preferred method of making adjustments for fi-
and individual transactions).
nancing is the use of compound interest tables. (IAAO
• Attorney’s fee 1996, 416–453)
• Costs of recording the deed and mortgage 7.4.1 Assumed Mortgages (Nonmarket Rates)
• Survey In an assumption of a mortgage, the buyer accepts liabil-
ity for repayment of an existing debt of the seller. The
• Title insurance
adjustment process is similar to that of seller-financing
• State transfer taxes (if any). except for the assumption fee (lender’s processing fee),
These costs do not affect the sale price of the property which is added to the sale price. In order to make an
and no adjustment should be made when they are paid adjustment for loan assumptions that are at nonmarket
by the buyer. However, when paid by the seller, the costs rates, the following information is needed.
should be deducted from the sale price. • Loan assumption fee
• Market interest rate
7.3 Delinquent Taxes (Paid by Buyer)
Prepaid property taxes or current tax liabilities are usu- • Actual interest rate
ally prorated to the buyer and the seller and have no • Amount of the loan
bearing on the sale price. However, if the buyer agrees
to pay delinquent taxes, this amount should be added to • Term and amortization provisions
the sale price. • Down payment (if any)
15
Example: Adjustment for Assumed Mortgages—Cash Example: Adjustment for Points Paid by Seller
Equivalent Sale Price Sales Price $50,000
Sale price $160,000 Points paid by seller 2 (1 point = 1%)
Down payment 40,000 Use monthly tables Sales price minus Points = Adjusted Sales Price
Assumption 120,000 $50,000 - $1,000 = $49,000
Market rate of interest 8%
7.4.4 Seller-Financing (Nonmarket Rates)
Rate on current mortgage 6%
Sales in which the seller and the lender are the same
Term of the loan 15 years
party need to be thoroughly examined to determine
Assumption fee 1%
whether or not the interest rate is the prevailing rate.
Payments based on the actual and market rates of interest would be as follows. If it is, no adjustment should be made for financing. In
$120,000 (Assumption) x .009556 (partial payment factor for 15 yrs @ 8%) = $1,146.84 some cases, the seller/lender may accept a low sale price
$120,000 (Assumption) x .008439 (partial payment factor for 15 yrs @ 6%) = $1,012.68 in exchange for a high rate of interest. In other cases
Difference $134.16 there may be an agreement on a low rate of interest in
Difference in monthly payments ($134.16) x the present worth of one per period for exchange for a higher sale price. If the interest rate is
15 years @ 8% (104.64059) = $14,038.58 rounded $14,000 above or below the going rate of interest, the difference
$14,000 is the indicated worth to the buyer for the lower interest rate. in monthly payments required under the going and as-
The sale price ($160,000) minus the indicated worth to the buyer ($14,000) = the
sumed rates of interest should be discounted to its pres-
adjusted sale price ($146,000)
The adjusted sale price ($146,000) plus the assumption fee (1% of $120,000) =
ent value. This amount should be subtracted from the
$146,000 + $1,200 = $147,200 (adjusted sale price including the assumption fee) sale price when the assumed rate of interest is less than
the going rate, and added to the sale price when the as-
7.4.2 Gift Programs sumed rate exceeds the going rate. The ultimate goal is
to bring the sale price up or down to market.
Gift programs are a type of creative financing for quali-
fied residential home buyers by certain lending institu- Lower rate Higher sales price (deduct)
tions that provide the buyer with monies to use as part Goal = Market value
of a down payment or for property improvements (e.g., Higher rate Lower sales price (add)
AmeriDream, Inc., Housing Action Resource Trust
[HART], Citizens’ Housing and Planning Association Example: Adjustment for Seller-Financing—Cash
[CHAPA] are only a few). These Federal programs are Equivalent Sales Price
typically associated with low-value residential proper- Sale price $120,000
ties and are difficult to discover. Typically, the reported Down payment 20,000 Use Monthly Tables
sale price for the property is inflated to include the gift Financed by Seller 100,000
amount (monies not received by the seller). The sale Market rate 8.5%
price should be adjusted to reflect only the sale price of Actual rate 10.0%
the real property received by the seller. Term 20 yrs.
Example: Adjustment for Gift Programs Partial payment factor for 20 years @ 10% = 0.00965 x $100,000 (financed) = $965.00
Partial payment factor for 20 years @ 8.5% = 0.00868 x $100,000 (financed) = $868.00
Sale price minus gift amount = adjusted sales price
Difference $ 97.00
7.4.3 Points (Paid by Seller) The present value of the difference in the amount of monthly payments =
Points may be defined as a percentage of the loan Difference $97.00 x present worth of 1 per period for 20 years @ 8.5% (always use
amount (charged by the lender) for making the money market rate) 115.23084 = $11,177.39 Rounded 11,177
available to the borrower. Lenders often charge points Sale price $120,000 + $11,177 Value to seller-lower sale price = Adjusted Sale Price
$131,177
in lieu of a higher interest rate, sometimes to comply
with interest rate ceilings. One point is equal to one per-
cent of the amount of the loan. Points paid by the buyer 7.5 Personal Property (Paid by Buyer)
(borrower) are part of the down payment and do not Personal property values that may be included in the sale
require an adjustment, because the points merely rep- price are either tangible or intangible personal property.
resent prepaid interest. However, when the seller pays Sales verification includes determining the contributory
points, the sale price should be adjusted downward by value of any significant personal property included in
the value of the points, because the buyer receives a be- the sale price. If these sales are to be included as poten-
low-market interest rate subsidized by the seller. Under tially valid transactions, the value of these contributory
the market value assumption of informed buyers and items should be subtracted from the sale price to deter-
sellers, the seller must put the property on the market mine the price paid for the real estate. Personal prop-
at a higher price in order to realize the same amount of erty includes such tangibles as machinery, furniture, and
money for it. inventories and such intangibles as franchises, licenses,
and non-compete agreements (see Appendix F for a
16
more thorough description of intangible personal prop- not made as of the appraisal date, then the sale price
erty). Ordinarily, it is not necessary to consider goodwill, should be adjusted to $190,000 to reflect the value of the
going-concern value, business enterprises value, or the unrepaired property on the appraisal date.
like, unless the value of these intangible assets has been
itemized in a sales contract or a formal appraisal has
been prepared for either party. 7.8 Special Assessments
A special assessment is a special tax imposed on prop-
It is necessary to decide whether each item included in erty, individual lots, or all property in the immediate
the sale should be classified as real or personal proper- area. These taxes are collected for road construction,
ty (see Standard on Valuation of Personal Property [IAAO sidewalks, sewers, and street lights, among other govern-
2005], which provides guidance on classification of ment services. Special assessments are used to finance
property as real or personal). capital improvements or provide services adjacent to the
Sale prices should be adjusted by subtracting the con- properties they directly benefit. Typically, the property
tributory value of personal property received by the owner is obligated to make annual payments of prin-
buyer. Ordinary window treatments, outdated models cipal and interest to a local unit of government over a
of freestanding appliances, and common-grade used specified number of years. The sale price of a property
furniture included with residential property do not usu- encumbered by a special assessment can require adjust-
ally influence the sale price of real property and do not ment if the current balance of the defrayed amount is
require an adjustment unless the items were specifically significant. The sale price can be adjusted upward to ac-
broken out in the contract as personal property includ- count for this lien. If the effect on market value is sig-
ed in the sale price. If the value of personal property nificant and can be ascertained, an adjustment should
appears to be substantial (10 percent for residential – be made.
25 percent for commercial/industrial), the sale should
be excluded as a potential valid transaction unless the
7.9 Time
sample sizes are small.
There should be a program to track changes in price lev-
els over time and adjust sale prices for time as required.
7.6 Real Estate Commissions Time adjustments should be based on market analysis
The real estate commission is the fee the seller pays to and be appropriately supported. Valid time adjustment
a real estate broker to obtain a buyer for the property. techniques are as follows:
A knowledgeable seller can avoid the fee by advertising
• Tracking sales-to-appraisal ratios over time
and showing the property, negotiating with potential
buyers, and performing the necessary paperwork. The • Including date of sale as a variable in regression
commission then represents the cost of such services, or feedback models
and the sale price cannot be expected to be any more or
• Analyzing resales
any less if these services are performed by a real estate
broker or by the seller. Therefore, a real estate commis- • Comparing per-unit values over time in homo-
sion should not be subtracted from the sale price. The geneous strata, such as a subdivision or condo-
sole exception to this rule occurs when the buyer agrees minium complex
to pay the seller’s commission, in which case the amount
• Isolating the effect of time through paired sales
of the commission is added to the sale price.
analysis.
Example: Time Adjustment Plot of Sale/Appraisal Ratios
7.7 Repair Allowances
Sometimes the seller provides a repair allowance to the
buyer to cure defects in the property. In sales ratio stud-
ies it is important to match the property assessed with
the property sold. Repair allowances should be deduct-
ed from the sale price only if the property was in an un-
repaired state on the appraisal date but sold at a higher
price reflecting the value of the repairs. If the sale oc-
curred before the appraisal date and the repairs were
made prior to the appraisal date, no adjustment should
be made. For example, if a property sold for $200,000
with the seller agreeing to credit the buyer $10,000 for
needed repairs at closing and both the sale and repairs These techniques are discussed in Mass Appraisal of Real
were completed before the appraisal date, no adjust- Property (Gloudemans 1999), Property Appraisal and As-
ment to the sale is required. However, if the repairs are sessment Administration (Eckert, Gloudemans, and Almy
1990, Appendix 5-3), and Improving Real Property Assess-
17
ment (IAAO 1978, section 4.6). If sale prices have gener- Desmond, Glenn M., and Richard E. Kelly. 1988. Business
ally been rising, ratios for sales that occurred after the valuation handbook. Los Angeles: Valuation Press, Inc.
assessment date tend to understate the overall level of Eckert, J.K., R.J. Gloudemans, and R.R. Almy, eds. 1990.
appraisal. Similarly, sales ratios for sales that occurred Property appraisal and assessment administration. Chicago:
before the assessment date tend to overstate the level International Association of Assessing Officers.
of appraisal. If prices are generally declining, an oppo-
site pattern results. When tracking sale/appraisal ratios International Association of Assessing Officers (IAAO).
over time (using the inverse ratio technique) for deter- 1978. Improving real property assessment. Chicago: IAAO.
mining time adjustments, it is important that ratios for IAAO. 1996. Property assessment valuation, 2nd ed., 416–
chased sales be excluded, since there is no correlation of 453. Chicago: IAAO.
such sales ratios with the date of sale. IAAO. 1997. Glossary for property appraisal and assessment.
Changes in price levels should be monitored and time Chicago: IAAO.
adjustments made by geographic area and type of prop- IAAO. 2005. Standard on valuation of personal property.
erty, because different segments of the market tend to Chicago: IAAO.
change in value at different rates.
IAAO. 2010. Standard on ratio studies. Kansas City, MO:
Oversight agencies can make any appropriate time ad- IAAO.
justments after making all other adjustments. Time Gloudemans, R.J. 1999. Mass appraisal of real property.
adjustments should be applied prior to any statistical Chicago: International Association of Assessing Officers.
analysis; however atypical sales should be removed for
the time-trend application. These atypical sales should, Technical Standards Committee, International Associa-
however, be included during the outlier trimming pro- tion of Assessing Officers. 2009. State and provincial ra-
cess which occurs during the statistical phase of the ratio tio study practices: Results of 2008 survey. Journal of Prop-
study program. erty Tax Assessment & Administration 6 (2): 29–81.
Tomberlin, N. 2001. Sales validation from an oversight
agency’s perspective. Assessment Journal 8 (6): 29–35.
8. References
Appraisal Institute. 2001. A business enterprise value anthol-
ogy. Chicago: Appraisal Institute.
18
Definitions
Abstract of Title. An abstract is a complete summary of level, increasing, or decreasing stream of scheduled and
all recorded documents affecting the title to a property. predictable income or payment amounts.
These documents include all conveyances, such as deeds
Arm’s-Length Sale. See sale, Arm’s-Length
or wills, and all legal proceedings relating to ownership
of the property. Abstracts are arranged to show the his- Assemblage. Assemblage is the assembling of adjacent
tory of ownership, describe the land and improvements, parcels of land into a single unit. Compare plottage.
and give the name(s) of past and present owners(s). Assembly Value. The excess of the value of a large parcel
Absolute Ownership. Ownership of all real property rights of land formed from a number of smaller parcels over
and interests in real estate parcel. Also see fee simple. the sum of the values of the unassembled parcels.
Accuracy. Accuracy is the closeness of an estimated value Assumption Fee. A lender’s fee for processing records
(for example, measured or computed) to a standard or when a new buyer assumes an existing loan.
accepted value of a particular quantity. Compare to in- Assumption of Mortgage. An assumption of a mortgage
tegrity, precision, validity. is an agreement in which the buyer accepts liability for re-
Address. (1) A location, expressed in terms of a conven- payment of an existing debt. Unless the seller is released,
tional spatial reference scheme, at which a property or he or she remains liable for the payment of such debt.
person may be found. (2) In a computer file, a specific Affidavit of Equitable Interest. Affidavits are contracts
juncture of circuits in computer machinery at which in- for the purchase of real property under the terms of
formation is stored in the form of magnetic polarities. (3) which legal title to the property is retained by the seller
The name a programmer uses to refer to such a juncture. until such time as all the conditions stated in the con-
Note: For a file of human-readable information, one must es- tract have been fulfilled. These are commonly used for
tablish rules about whether and how to record various relevant the installment purchase of real property; however, the
addresses, including the situs address, owner’s address, and deed is not recorded until the terms of the contracts
mortgagee’s address. have been fulfilled.
Adjusted Sale Price. See Price, Adjusted Sale. Amortize. The process of repaying a loan or recovering
a capital investment by means of a series of scheduled
Adjustments. Adjustments are modifications in the re-
payments, typically includes interest charges and princi-
ported value of a variable, such as sale price. For exam-
pal repayment in each of the scheduled payments.
ple, adjustments can be used to estimate market value
in the sales comparison approach by modifications for Assessment Ratio. (1) The fractional relationship an as-
differences between comparable and subject properties. sessed value bears to the market value of the property in
question. (2) By extension, the fractional relationship
Note: Adjustments are applied to the characteristics by the com-
the total of the assessment roll ears to the total market
parable properties in a particular sequence that depends on the
value of all taxable property in a jurisdiction.
method of adjustments selected.
Attachment. Property seizures by a court order.
Adverse Possession. The exclusive occupation and con-
tinuous possession of (another’s) real property under Attestation Clause. The witness clause in a document
an evident claim of title or right. that affirms the document is properly executed.
Affidavit. A written form of an affirmed or sworn state- Attribute. Characteristic of a property.
ment. Absolute Auction. This is an auction in which the
Agreement. It is a general term describing a common property is sold to the highest bidder regardless of the
view of two or more people regarding the obligations amount. No minimum bid clause.
and rights of each with regard to a specific subject. Auction. Auctions are a method of marketing and sell-
Air Rights. The right to use space above real estate. ing real property. Property that sells by absolute auction
should never be included in model calibration and ratio
Alienation. The transfer of title from one person to an-
studies.
other.
Bailment. A transaction in which personal property is
Alienation Clause. This is a type of acceleration clause
delivered by its owner (the bailor) to a second party (the
that calls for a debt under a deed or mortgage to be due
bailee) into whose possession it is put for safekeeping or
in its entirety upon transfer of ownership from the se-
for some other temporary purpose or use with no inten-
cured party.
tion that title shall pass to the second party.
Annuity. An annuity is (1) the right to receive money
Balloon Mortgage. A mortgage not fully amortized at ma-
or its equivalent in (usually) fixed equal amounts or at
turity and requiring a lump sum (or balloon) payment.
regular intervals for a definite or indefinite term; (2) a
19
Beneficial Estate. An estate of which the right to posses- Buyer’s market. A market wherein the supply is greater
sion has not yet passed. than the demand.
Beneficial Interests. The property interests resulting Cash-Equivalent Sales Price. An indicator of market val-
from equitable ownership in a property rather than le- ue that is a refinement over the raw sale price, in that the
gal ownership; for example, the interests of the benefi- effects of unusual financing arrangements and extrane-
ciary of a trust. ous transfers of personal property have been removed.
Beneficiary. (1) The person for whose benefit property Cash Lease. A cash lease is a written document transfer-
is held in trust. (2) The person to whom the proceeds ring from one owner to another party the right to live
of an insurance policy are payable upon the happening in or to use property for a specified period of time for a
of the even insured against or the non-happening of the specified amount of money.
assured event.
Certificate of Redemption. The evidence of buying back
Blanket Mortgage. A mortgage covering more than one or redeeming a property by the owner after loss through
property; use in, for example, subdivision development a judicial sale.
and cooperative apartment ownership.
Certificate of Sale. A certificate, issued to the buyer at a
Bond, Loan. A written instrument, under seal, evidencing judicial sale, that entitles the buyer to a deed upon con-
a participating interest in an obligation of a borrower and firmation of the sale by the court or if the property is not
containing a formal promise to pay a sum certain (the par redeemed within a specified time.
or face value) at a fixed future date (the date of maturity),
Certificate of Title. A document that states that the title
with interest payable periodically at a fixed rate.
to a property is believed to be clear based on the exami-
Note: This is the type of bond ordinarily referred to in the phrase nation of the abstract of title for the property.
“stocks and bonds.” There are few exceptional bonds outstand-
Cestui Que Trust. A beneficiary of property held in trust.
ing that have not date of maturity or that bear interest at a rate
varying with the issuer’s income or with the general price level. Chattel. Chattel is tangible personal property.
Breach of Contract. The failure to perform a contract, Closing. Closing is the act of finalizing a real estate trans-
in whole or in part. action that executes and delivers mortgage or property
title documents.
Bullet Loan. Gap financing offered with a construction
loan has expired but permanent financing has not yet Closing Costs. Settlement fees and expenses incurred in
been found. transferring property ownership that are paid at the real
estate closing.
Bundle of Rights. The six basic rights associated with the
private ownership of property: right to use; sell; rent or Closing Statements. Closing statements provide a listing
lease; enter or leave; give away; and, refuse to do any of of incurred closing costs of the buyer and seller in clos-
these. ing a real estate transaction.
Business Assets. Business assets are tangible and intangi- Cloud on Title. Any valid claim, encumbrance, or lien
ble resources that are employed by a business enterprise that may impair the title to real property.
in its operation. Coding. Coding is the act of reducing a description of a
Business Enterprise. Business Enterprise is the commer- unique object, such as a parcel of real estate, to a set of
cial, industrial, or service organization pursuing an eco- one or more measures or counts of certain of its charac-
nomic activity. teristics, such as square footage, number of bathrooms,
and the like.
Business Enterprise Value. A term applied to the con-
cept of an intangible, non-realty component of a prop- Color of Title. Color of title refers to an appearance of
erty’s value probably ascribable to supra-marginal man- legal ownership that arises from irregular conveyances.
agement competence. This is different from goodwill If, for example, an owner’s claim to property depended
and going-concern value. on a deed that had never been recorded, that owner
would have color of title but would not have full legal
Business Equity. The interests, benefits, and rights in-
title. Color of title cannot arise from fraudulent docu-
herent in the ownership of a business enterprise or a
ments, such as forgeries.
part thereof in any form (including but not necessarily
limited to capital stock, partnership interests, coopera- Commercial Property. Commercial property is generally
tives, sole proprietorships, options, and warrants). any nonindustrial, nonresidential realty of a commercial
enterprise. It includes realty used as retail or wholesale
Buyer. (1) The buyer is one who purchases property. (2)
establishment, retail establishment with living quarters,
In real property sales the buyer is the grantee to whom
office building, hotel or motel, gasoline service station,
property is transferred by deed or to whom property
commercial garage, parking lot, warehouse, theater,
rights are granted by a trust instrument or other docu-
bank, clinic, nursing home, proprietary school, and the
ment.
like.
20
Common Area. The total area within a property that Corporation. A legal entity (business organization form)
is not designed for rental or sale, which is available for operating under a grant of authority from a state in the
common use by all tenants and owners. See also undi- form of a charter and articles of incorporation.
vided interests.
Covenant. A covenant is a promise written into a legal
Comparable sales; Comparables. (1) recently sold prop- agreement (such as a deed) that binds the parties to
erties that are similar in important respects to a prop- abide by or refrain from certain acts. A deed restriction
erty being appraised. The sale price and the physical, is a special kind of covenant.
functional, and locational characteristics of each of the
Date of Sale (date of transfer). The date on which the
properties re compared to those of the property being
sale is agreed is the date of sale. This is considered to be
appraised in order to arrive at an estimate of value. (2)
the date the deed, or other instrument is signed. The
By extension, the term “comparables” is sometimes used
date of recording can be used as a proxy if it is not un-
to refer to properties with rent or income patterns com-
duly delayed as in a land contract.
parable to those of a property being appraised.
Declaration of Restrictions. A set of recorded restric-
Computer-Assisted Mass Appraisal System (CAMA). A
tions that apply to a specific area or subdivision.
system of appraising property, usually only certain types
of real property, that incorporates computer-supported Declaration of Trust. A written acknowledgment by the
statistical analyses such as multiple regression analysis legal title holder to property specifying the property is
and adaptive estimation procedures to assist the apprais- held in trust for the benefit of another party.
er in estimating value. Deed. A document (or written legal instrument) which,
Condominium/Condominium Unit. A condominium when executed and delivered, conveys an interest in or
is a separately owned unit of real property in the same legal title to a property.
structure with other such units; the unit owners hold an Deed, Bargain and Sale. A bargain and sale deed implic-
undivided interest in common elements of the property, itly or explicitly asserts the grantor’s ownership of the
such as a lobby, swimming pool, and grounds. Also see property conveyed, but it makes no guarantees to de-
cooperative. fend the title. It provides the grantee more protection
Consideration. The amount of money and other valu- than a quitclaim deed but less than a special warranty
able goods or services on which a buyer and a seller deed. The words of conveyance “bargain and sale” dis-
agree, to consummate a sale. tinguish a bargain and sale deed.
Contract, Land. Also see Land Contract. Deed, Quitclaim. A deed in which the grantor conveys
or relinquishes all interests that he or she may have in a
Contract for Deed. A contract for sale in which the sell-
property, without warrant as to the extent or validity of
er retains title until the buyer completes the contracted
such interest.
payments for the property. The sale is not recorded until
title passes to the buyer. See also Land contract. Deed, Special Warranty. A deed in which the grantor
only covenants to warrant and defend the title against
Contract Rent. The actual amount of rent, per unit of
claims and demands of the grantor and all persons
time, which is specified in the contract (lease). For very
claiming by, through and under him.
old contracts, the contract rent may be substantially less
than the rent the property would bring today. Compare Deed, Tax. A deed by which title to real property, sold
market rent. to discharge delinquent taxes, is transferred by a tax col-
lector or other authorized officer of the law to the pur-
Conveyances. Legal documents that transfer ownership
chaser at a tax sale.
of property. Deeds and wills are examples of conveyanc-
es. Compare real estate transfer documents. Deed, Trust. (1) Broadly, a deed by which title to prop-
erty is transferred to a trustee to be held in trust. (2)
Cooperative. A business entity, usually a corporation,
Specifically, a deed by which title to property is trans-
that holds title to realty and that grants rights of occu-
ferred, conditionally or unconditionally, to a trustee to
pancy to its shareholders by means of proprietary leases
be held for the benefit of creditors or obligors of the
or similar devises. A cooperatively owned apartment
grantor. (3) Loosely, the agreement made between an
building is legally different from a building consisting of
issuer of bonds and the holders of such bonds that is de-
condominium units. See also condominium and blan-
posited with the trustee, whether or not such agreement
ket mortgage.
involves the transfer of property to the trustee. A trust
Copyrights. The exclusive right granted by a govern- deed is also known as “deed of trust.”
ment for a limited period to an author, composer, de-
Deed, Warranty. A deed containing a covenant of war-
signer, or such, or his or heirs, legatees, or assigns, to
ranty whereby the grantor of an estate of freehold guar-
reproduce, publish, and sell copies of an original literary
antees that the title that he or she undertakes to transfer
or artistic work.
is free from defects and that the property is unencum-
bered except as stated, and whereby the grantor, for him-
21
or herself and his or her heirs, undertakes to defend and another, for example, the beneficiary of a trust has equi-
protect the grantee against any loss that may be suffered table ownership in the trust property.
by reason of the existence of any other title or interest in
Equity. (1) In assessment, equity is the degree to which
the property existing at the time the deed was executed
assessments bear a consistent relationship to market val-
and not excepted therein. Contrast deed, quitclaim.
ue. Measures include the Coefficient of dispersion, coef-
Deed Recordation. The process of registering a sale of ficient of variation, and price-related differential. (2) In
real property with the appropriate public body, usually popular usage, a synonym for equity is a synonym for
the county recorder’s office. tax fairness. (3) In ownership, the net value of property
after liens and other charges have been subtracted.
Deed Restriction. A limitation to property rights that
transfers with the property regardless of the owner. Equity of Redemption. A right recognized by courts of
equity whereby a person who has transferred legal title
Delinquent Taxes. Delinquent taxes are past due and
to property as security for an obligation is permitted, af-
unpaid taxes.
ter defaulting on the obligation, to retain possession of
Disclosure. (1) Act of disclosing. (2) Revelation. (3) To the property for such period as may be prescribed by law
make known or public. (4) In real estate, a seller of real or by the court and to reacquire legal title to the proper-
property must disclose facts that affect the value or de- ty upon fulfillment of the obligation within such period.
sirability of the property. Unless exempt, the seller com-
Estate. Estate refers to (1) the interest which a person
pletes and signs specific disclosure forms, including the
possesses in a single concrete article of property; (2) the
Real Estate Transfer Disclosure Statement, to disclose
aggregate interests of any person in articles of property of
those material facts.
all descriptions; and, (3) the aggregate property of all de-
Discounted Cash Flow Analysis. The discounted cash scriptions left by a decedent. Also see tenancy; real estate.
flow analysis is (1) a yield capitalization method used
Estate, Leasehold. Any possessory interest in land less
to calculate the present value of anticipated future cash
than estate of freehold, that is, an estate for years, an
flows and (2) analysis of the present value of an income-
estate from years to year (periodic estate), an estate at
producing property by isolating differences in the tim-
will, or an estate at sufferance. See leasehold.
ing of cash flows. Net cash flows from all time intervals
involved in the analysis are discounted to present value Estate for Years. A possessory interest in land which can-
by an appropriate discount rate. not endure beyond a date specified in the conveyance
or a date precisely determinable at the time the interest
Discounting. Discounting is the process of estimating
becomes possessory.
the present worth of an anticipated item of income or
expense by determining the amount of money which, Estate in Fee Simple. An inheritable, possessory interest
if presently invested and allowed to accumulate at com- in land that may endure until the extinction of all lineal
pound interest, will exactly equal the expected item of and collateral heirs of the first owner and that may be
income or expense at the time when it becomes due. freely conveyed by its owner; the largest possible estate
in land.
Discount Rate. A discount rate is (1) the rate of return
on investment; the rate an investor requires discounting Estate of Freehold. Any one of the three types of posses-
future income to its present worth. The discount rate sory Interest in land—fee simple, fee tail, and estate for
is made up of an interest rate and an equity yield rate. life—that in feudal time were granted only to freemen.
Theoretical factors considered in setting a discount rate
Note: Estates of freehold are said to be estates of indefinite dura-
are the safe rate earned from a completely riskless invest-
tion and any other estate is said to be “less than freehold.”
ment (this rate may reflect anticipated loss of purchas-
ing power due to inflation) and compensation for risk, Exchange (IRS 1031). Internal Revenue Code Section
lack of liquidity, and investment management expenses. 1031 enables a taxpayer to defer gain on the sale of a
The discount rate is most often estimated by band-of- business use or investment property, provided that the
investment analysis or sales comparison analysis that es- seller reinvests in another businesses use or investment
timates typical internal rates of return. (2) In monetary property.
policy, the rate that the Federal Reserve Bank charges Note: The seller has 45 days from closing of their current prop-
member banks to borrow. Compare to recapture rate. erty to identify a replacement property. Although there are re-
Divided Rights. Rights to property that have been divid- quirements an exchange is much like a typical sale and pur-
ed among several owners in partnerships, joint tenancy, chase transaction. To defer all capital gains one must acquire a
tenancy in common, and time-share units. replacement property with equal or greater property value to that
of the sold property. The seller must also reinvest all net equity.
Encumbrance. Any limitation that affects property rights
and value. Fannie Mae. Defined under Federal National Mortgage
Association.
Equitable Ownership. The interest or estate of a person
who has beneficial right in property legally owned by
22
Federal Home Loan Mortgage Corp(FHLMC) (Freddie Future Worth of 1 per Period. (The future worth of 1
Mac). An organization that facilitates secondary residen- per period is also called the compound amount or ac-
tial mortgages for savings and loan associations, to in- cumulation of 1 per period.) It is the amount to which
crease availability of residential mortgage financing. a series of equal periodic payments will accumulate at
compound interest for a specified number of years and
Federal National Mortgage Assn. (FNMA) (Fannie Mae).
at a specified interest rate.
A quasi-governmental agency that purchases mortgages
from originators; intended to increase liquidity in the General Warranty Deed. The general Warranty deed
home mortgage market. is the most common type of deed. This deed implicitly
promises that (1) the grantor owns the property and
Fee Simple. Fee simple in ownership is complete inter-
may convey title; (2) there are no hidden liens against
est in a property, subject only to governmental powers
the property; (3) no one else has better title to the prop-
such as eminent domain. Fee simple is also known as fee
erty; (4) the grantor will obtain and deliver any docu-
simple absolute. Also see estate in fee simple and abso-
ments needed to make good the transfer; and (5) the
lute ownership.
grantor will be liable for damages if future competing
Fee Simple Condition Subsequent. This gives an owner claims to the property prove valid.
fee simple title to property so long as a specified event
Going Concern Value. Going concern value is the en-
(usually a change in use) does not occur. The person
hanced or synergistic value of assets due to their existence
granting fee simple condition subsequent title must file
within, or assemblage into, an operating and economical-
suit to recover ownership if the condition is not met.
ly viable business that is expected to continue its opera-
Fee Simple Determinable. Fee Simple Determinable is tion in the future with no intention or necessity of liquida-
identical to fee simple condition subsequent except that tion or the material alteration of the scale of operation.
the grantor (the original owner) does not need to file
Goodwill. Goodwill is the economic advantage over
suit to regain title.
competitors that a business has acquired by virtue of ha-
Fee Simple Title. Fee simple title indicates ownership bitual patronage of customers.
that is absolute and subject to no limitation other than
Government National Mortgage Assn (GNMA) (Ginnie
eminent domain, police power, escheat; and taxation.
Mae). A government-owned and government-financed
Fiduciary. A fiduciary is any person who occupies a posi- agency that subsidizes mortgages through its secondary
tion of special trust in certain of his or her relationships mortgage market and issues federally insured mortgage-
to another person or persons, for example, an adminis- backed securities. This agency falls within the Depart-
trator, executor, guardian, receiver or trustee. ment of Housing and Urban Development.
Foreclosure. Foreclosure is the legal process by which a Grantee Index. Lists alphabetically the name of every
lien on a property is enforced. grantee whose name appears on a deed recorded for the
Foreclosure-Related Sale. These sales were formerly fore- year the index covers.
closed on by the financial institution. The seller will be the Grantee. A grantee is one who acquires property by vol-
financial institution. These sales typically are on the low untary conveyance.
side of the value range because the financial institution is
Grantor. A grantor is one who voluntarily conveys prop-
highly motivated to sell and may be required by banking
erty, whether by sale, gift, lease, or otherwise.
regulations to remove the property from its books.
Grantor Index. Lists alphabetically the name of every
Franchise. A privilege or right that is conferred by grant
grantor whose name appears on a deed recorded for the
of government or an individual or a group of individuals;
year the index covers.
usually an exclusive right to furnish public services or to
sell a particular product in a certain geographical area. Industrial Property. Industrial property is generally any
property used in a manufacturing activity, including a
Freddie Mac. Defined under Federal Home Loan Mort-
factory, wholesale bakery, dairy plant, food processing
gage Corporation.
plant, mill, mine, quarry, all locally assessed utility prop-
Free and Clear. Free and clear is property unencum- erty, and the like.
bered by any liens or mortgages.
Installment Contract. An installment contract is a pur-
Freehold. Defined under estate of freehold. chase contract in which payment is made in prescribed
Future Worth of 1. (The future worth of 1 is also called installments that are usually forfeited if default occurs.
the compound amount of 1 or the amount of 1 at com- Instrument. An instrument is a formal legal document
pound interest.) It is the amount to which one dollar such as a deed, contract, will, or lease.
will grow at compound interest over a specified number
Intangible Personal Property. Intangible personal prop-
of years and at a specified interest rate.
erty is property that has no physical existence beyond
neither merely representational, nor any extrinsic value:
23
includes rights over tangible real and personal property, Land Contract. An executory contract for the purchase
but not rights of use and possession. Its value lies chiefly of real property under the terms of which legal title to
in what it represents. Examples include corporate stock, the property is retained by the vendor until such time as
bonds, money on deposit, goodwill, restrictions on ac- all conditions stated in the contract have been fulfilled;
tivities (for example patents and trademarks), and fran- commonly used for installment purchase of real prop-
chises. erty. Also see, contract for deed.
Note: Thus, in taxation, the rights evidenced by outstanding cor- Legal Description. A delineation of dimensions, bound-
poration stocks and bonds constitute intangible property of the aries, and relevant attributes of a real property parcel
security holders because they are claims against the assets owned that serve to identify the parcel for all purposes of law.
and income received by the corporation rather than by the stock- The description may be in words or codes, such as metes
holders and bondholders; interests in partnerships, deeds, and and bounds or coordinates. For a subdivided lot, the
the like are not ordinarily considered intangible property for tax legal description would probably include lot and block
purposes because they re owned by the same persons who own the numbers and subdivision names.
assets and receive the income to which they attach.
Lease. A written contract by which the lessor (owner)
Integrity. The quality of a data element or program be- transfers the rights to occupy and use real or personal
ing what it says it is; usually distinguished from validity, property to another (lessee) for a specified time in re-
the quality of its being what it should be in terms of some turn for a specified payment (rent).
ultimate purpose. After data are edited and encoded
Leaseback. The transfer of building, land, or personal
and programs are prepared, their integrity is ensured
property to a buyer under a special arrangement to si-
by safeguards that prevent accidental or unauthorized
multaneously lease it back to the original builder/seller,
tampering with them. Compare to accuracy; precision.
usually involving a long-term triple net arrangement
Interest (Interest Rate). Interest is the premium paid with options to renew the lease.
for the use of money; a (rate of) return on capital; the
Leasehold. See leasehold estate.
equilibrium price in money markets. The interest rate
usually incorporates factors for risk, illiquidity, time-pref- Leasehold Estate. Interests in real property under the
erence, inflation, and potentially other factors. Also see terms of a lease or contract for a specified period of
discount rate. time, in return for rent or other compensation; the in-
terest in a property that are associated with the lessee
Interest (Interest Transferred, Interest Acquired). It is
(the tenant) as opposed to the lessor (the property own-
the ownership rights of a person in a property. Com-
er). The lease may have value when market rent exceeds
plete ownership is called fee simple interest. It is possible
contract rent.
to sell (transfer) and to own separately the component
interests, such as mineral rights and air rights, which Leasehold Improvements. Items of personal property
make up the fee interest. Also see bundle of rights. such as furniture and fixtures associated with a lessee
(the tenant) that has been affixed to the real property
Interest, Possessory. See possessory interest.
owned by a lessor.
Interest, Undivided. See undivided interest.
Lessee. The person receiving a possessory interests in
Intestate. Intestate is the state of having died without property by a lease, that is, the owner of a leasehold estate.
leaving a valid last will and testament.
Lessor. Person granting a possessory interest in property
Inventory. Inventory is (1) the group of personal prop- by a lease, that is, the conveyor of a leasehold estate, the
erty items whose value is exhibited by value in exchange, holder of a leased fee estate.
that is, ownership is solely for the purpose of sale rather
Lien. A lien is (1) the legal right to take or hold property
than use; (2) in general, any detail list showing quan-
of a debtor as payment or security for a debt; (2) Any
tities and descriptions, and usually values or prices of
legal hold or claim, whether created voluntarily or by
property; (3) frequently used in the plural form to des-
operation of law, which a creditor has on all or specified
ignate all types of current, physical assets that are cus-
portions of the property owned by a person indebted to
tomarily listed by quantities, descriptions, and values or
him. Compare mortgage.
prices for regular accounting purposes (for example,
raw materials, goods in process, finished goods, office Life Estate. A life estate is an interest in property that
supplies, stores; and (4) occasionally (for example, in lasts only for a specified person’s lifetime; thus, the own-
Vermont), a tax list. er of a life estate is unable to leave the property to heirs.
Inwood Coefficient. The Inwood Coefficient is a factor Life Tenant. The recipient of a life estate.
used to obtain the present worth of a level stream of in- Market. (1) The topical area of common interests in
come; also known as the present worth of 1 per period which buyers and sellers interact. (2) The collective
factor. body of buyers and sellers for a particular product.
Joint tenancy. See tenancy, joint.
24
Market Analysis. Market analysis is a study of real estate Payment is made in terms of cash in United States dol-
market conditions for a specific type of property. lars or in terms of financial arrangements comparable
thereto;
Market Area. A geographic area, typically encompassing
a group of neighborhoods, defined on the basis that the The price represents the normal consideration for the
properties within its boundaries are more or less equal- property sold unaffected by special or creative financing
ly subject to a set of one or more economic forces that or sales concessions granted by anyone associated with
largely determine the value of the properties in question. the sale.
Market Analysis. A study of real estate market conditions Model. (1) a representation of how something works.
for a specific type of property. (2) For purposes of appraisal, a representation (in words
or an equation) that explains the relationship between
Market Modeling. See model.
value or estimated sale price and variables representing
Market-Related Adjustment. These adjustments account factors of supply and demand.
for changes in market conditions between the time a
Mortgage. A mortgage is a contract under the terms of
comparable sold and the effective date of the appraisal.
which the legal, but not the equitable, title to a specific
See market adjustment factors.
property of one person (the mortgagor) is conditionally
Market Adjustment Factors. Market adjustment factors, conveyed to a second person (the mortgagee) as secu-
reflecting supply and demand preferences, are often re- rity for the payment of a debt or performance of some
quired to adjust values obtained from the cost approach other act.
to the market. These adjustments should be applied by
Note: In some states, legal title to mortgaged property passes to
type of property and area and are based on sales ratio
the mortgagee on execution of the mortgage; in others, legal title
studies and other market analyses. Accurate cost sched-
passes when the debt secured by the mortgage is in default; in
ules, condition ratings, and depreciation schedules will
still others, the mortgage is simply a lien, and the legal title does
minimize the need for market adjustment factors.
not pass until foreclosure proceedings have been completed.
Market Approach. A valuation term with several mean-
Multiple Listing Service (MLS). This is a local or region-
ings. In its broadest use, it might denote any valuation
al service that compiles available real estate for sale by
procedure intended to produce an estimate of market
member brokers. Detailed information about properties
value, or any valuation procedure that incorporates mar-
is provided to brokers, agents and the public, generally
ket-derived data, such as the stock and debt technique,
online. Local MLS organizations have their own rules
gross rent multiplier method, and allocation by ratio. In
and systems for providing listing information.
its narrowest use, it might denote the sales comparison
approach. Neighborhood. A neighborhood is (1) the environment
of a subject property that has a direct and immediate ef-
Market Rent. The rent current prevailing in the market
fect on value; (2) a geographic area (in which there are
for properties comparable to the subject property. Mar-
typically fewer than several thousand properties) defined
ket rent is capitalized into an estimate of value in the
for some useful purposes, such as to ensure for later mul-
income approach.
tiple regression modeling that the properties are homo-
Market Value. Market value is the major focus of most geneous and share important locational characteristics.
real property appraisal assignments. Both economic and
Objective. Objective is the quality of being definable by
legal definitions of market value have been developed
specific criteria without the need for judgment. Quanti-
and refined. A current economic definition agreed
tative variables are objective.
upon by agencies that regulate federal financial institu-
tions in the United States is: Open Market. A freely competitive market in which any
buyer or seller may trade and in which prices are deter-
The most probably price (in terms of money) which a
mined by competition.
property should bring in a competitive and open market
under all conditions requisite to a fair sale, the buyer Origination Fee. Origination fee is a fee charged by a
and seller each acting prudently and knowledgeable, lender (called the loan “originator” for making a real
and assuming the price is not affected by undue stimu- estate loan.
lus. Implicit in this definition is the consummation of a
Outliers. Observations that have unusual values, that
sale as of a specified date and the passing of title from
is, they differ markedly from a measure of central ten-
seller to buyer under conditions whereby:
dency. Some outliers occur naturally; others are due to
The buyer and seller are typically motivated; data errors.
Both parties are well informed or well advised, and act- Owner, Equitable. An equitable owner is one who, un-
ing in what they consider their best interest; der rules of equity, has rights to some or all of the ben-
efits deriving from property, although legal ownership
A reasonable time is allowed for exposure in the open
and actual possession may be vested in another person.
market;
25
Owner, Legal. One who has dominion over property un- Note: Because of the variety of meanings attached to this term
der the rules of law, as distinguished from rules of equity. and its derivatives, it is suggested that the more descriptive term
“assemblage” and its derivatives be used to convey all of the
Ownership. The rights to the use of property, to the ex-
above meanings except the first. Compare assemblage.
clusion of others.
Plottage Value. (1) The increment of value ascribed to a
Parcel. A continuous are of land described in a single
plot because of its suitability in size, shape, and/or loca-
legal description or as one of a number of lots on a plat;
tion with reference to other plots (preferred). (2) The
separately owned, either publicly or privately; and, ca-
excess of the value of a large parcel of land formed by as-
pable of being separately conveyed.
semblage over the sum of the values of the unassembled
Parcel Identification Number. A numeric or alphanu- parcels.
meric description of a parcel that identifies it uniquely.
Points. Prepaid interest on a loan; one point is equal to
Assessors use various systems, many with common fea-
1 percent of the amount of the loan. It is common to de-
tures. A growing number of these systems include geoc-
duct points in advance of the loan, so that an individual
oding, in the thirty states where it exists, the Public Land
pays interest on 100 percent of the loan, but gets cash
Survey System, authorized by the United States govern-
on, say, only 99 percent.
ment in 1785, is often a basis for parcel identification.
Possession. Possession is the physical control of person-
Parcel Identifier. A code, usually numerical, represents
al or real property.
a specific land parcel’s legal description. The purpose of
parcel identifiers is to permit reference to legal descrip- Possessory Interest. (1) An interest of a person in an
tions by using a code of uniform and manageable size, article of property arising from a physical relationship
thereby facilitating record-keeping and handling. Also to the article of such nature as to confer on him or her
called parcel identification number. degree of physical control over it, coupled with the in-
tent so to exercise such control as to exclude the gen-
Parcel of Land. A contiguous urban or rural land area
eral public from use of it. (2) The right to occupy and
that is considered as a unit, is subject to single owner-
use any benefit in a transferred property, granted under
ship, and is legally recorded as a single piece.
lease, license, permit, concession, or other contract. (3)
Partial Interest. An interest (in property) that is less A private taxable interest in public tax-exempt property,
complete than a fee simple interest. for example, a private service station in a federal military
Partial Payment Factor. Also known as the “amortiza- base. Assessment of this interest permits complex valua-
tion” or “periodic repayment” factor. The equal periodic tion problems. Among the issues are whether the own-
payment that has a present worth of $1, for a specified ership or the use is exempt, whether the parcel should
number of periods and at a specified discount rate. be split, and whether market rent differs from contract
rent.
Patent. (1) The exclusive right granted by a government
for a limited period to an inventor, his or her heirs, leg- Precision. The degree of refinement in the performance
atees, or assigns, to make, use, and vend an article or of an operation, or the degree of perfection in the in-
process invented by him or her. (2) The instrument by struments and methods used when making the measure-
which government lands are granted to private persons ments. Precision relates to the quality of the operation
under the proceedings set forth in the general statutes. by which a result is obtained, and is distinguished from
accuracy, which relates to the quality of the results. Com-
Personal Property. Personal property consists of every pare to integrity; validity.
kind of property that is not real property, movable with-
out damage to itself or the real estate; subdivided into Present Worth. (1) The value of something after dis-
tangible and intangible. Personal property is also known counting future payments and receipts. (2) The present
as “Personalty.” value of income that is expected to be received at some
future date or dates, as ascertained by the process of dis-
Personalty. A synonym for personal property. counting both the income and the anticipated expens-
Plot. A plot is (1) a relatively small area of land, gener- es incident to its receipt, that is, the amount of money
ally used for a specific purpose; (2) a measured area of that if presently invested and allowed to accumulate at
land (lot). compound interest, would yield net income in the same
amounts and at the same intervals as is anticipated of a
Plottage. (1) Those factors of size, shape, and location given property. It is synonymous with capital value” and
with reference to other plots that add or detract from the “present value.”
value of a plot by a given purpose (preferred). (2) The
assembling of adjacent parcels of land into a single unit. Present Worth of 1. (Also called the reversion factor.)
(3) The excess cost of assembling adjacent parcels of land The lump-sum amount that would have to be set aside to
into a single unit under single ownership over the esti- accumulate with compound interest to $1 at the end of a
mated cost at which such parcels might be acquired indi- specified number of years and at a specified rate of inter-
vidually by independent purchasers. (4) Plottage value. est. Alternatively, it can be viewed as the present value of
26
$1 receivable at the end of a specified number of years Real Estate. The physical parcel of land and all improve-
and discounted at a specified rate. ments permanently attached. Compare to real property.
Present Worth of 1 per Period. (Also called the annuity Real Estate Transfer Documents. The various kinds of
factor or Inwood Coefficient.) The present worth of 1 deeds whereby real property is conveyed. Compare to
per period is the present worth of a series of payments conveyances.
of $1, receivable at the end of each year, for a specified
Real Estate Transfer Affidavits. In written or electronic
number of years and at a specified interest rate.
format, these documents are an affirmed or sworn state-
Price, Adjusted Sale. The sale price that results from ad- ment regarding particulars to a sale of real property,
justments made to the stated sale price to account for such as personal property, financing, etc. Typically, these
the effects of time, personal property, atypical financing, forms are required in states and provinces where sales
and the like. disclosure statutes have been enacted and are filed prior
to recording the deed. Comprehensive affidavits may
Price, Market. The value of a unit of goods or service,
limit the number of follow-up verifications required dur-
expressed in terms of money, as established in a free and
ing the sales verification process. These questionnaires
open market.
are also known as sales verification questionnaire.
Note: This term is sometimes distinguished from “market value’
Real Property. Real property consists of the interests,
on the ground that the latter term assumes that buyers and sell-
benefits, and rights inherent in the ownership of land
ers are informed, but this presumption is also implied by the
plus anything permanently attached to the land or le-
phrase “free and open market.” Compare to price, sale.
gally defined as immovable; the bundle of rights with
Price, Sale. The sale price is (1) the actual amount of which ownership of real estate is endowed. To the ex-
money exchanged for a unit of goods or services, wheth- tent that “real estate” commonly includes land and any
er or not established in a free and open market (an in- improvements; the two terms can be understood to have
dicator of market value); (2) loosely used synonymously the same meaning. Real property is also called “realty.”
with “offering” or “asking price”.
Realty. (1) Any tangible thing whose fee ownership con-
Note: The sale price is the “selling price” to the vendor and the stitutes real property, that is, land or improvements. (2)
“cost price” to the vendee. A synonym for real property.
Private Encumbrance’s. Private hindrances that affect Receiver. One who is appointed by a court of equity as
value and sale price such as easements, condominium its representative to manage property owned by an insol-
controls, and deed or subdivision restrictions. vent debtor until the claims of creditors have been met
Private Restrictions. Private parties, such as a group of or to manage property that is the subject of a law suit
homeowners, may establish private restrictions on own- pending its outcome.
ership rights. Deed restrictions are a common form of Recordation/Recording. Recordation/recording is the
private restriction. filing of documents affecting real property for public re-
Property. (1) Property is an aggregate of things or rights cord, which usually requires the witnessing and notariz-
to things. Property rights area protected by law. There ing of the document.
are two basic types of property: real and personal. (2) Redemption. The process by which the owner of real
The legal interest of an owner in a parcel or thing. See property sold at a tax sale buys back the property from
bundle of rights. the purchaser at an enhanced price within a specified
Property Split. A property split is the result of the sale of redemption period.
property held by a single owner such that different piec- Reject Code. A flag applied to a record (such as a sale)
es of the property are owned by different owners. Splits indicating that it should not be used for certain purpos-
may or may not occur along plat lines. Assessors need es.
to monitor splits not only to ensure the correctness of
Representative Sample. A sample of observations from a
the property listing, but also to monitor the land and its
larger population of observations, such that statistics cal-
adequacy as a lien against past and present tax liabilities.
culated from the sample can be expected to represent
Quitclaim Deed. See deed. the characteristics of the population being studies.
Ratio, Assessment. See assessment ratio. Residential (Nonfarm) Single-Family. Single-family
Ratio Study. A study of the relationship between ap- residential include each detached, semidetached, or at-
praised or assessed values and market values. Indicators tached house. If separately assessed and not on a farm,
of market values may be either sales (sales ratio study) or that is a residence for one family only. For detached
independent “expert” appraisals (appraisal ratio study). houses, this would include one-family rural properties
Of common interest in ratio studies are the level and or suburban estates not used primarily for farming and
uniformity of appraisals or assessments. mobile homes assessed as real property. This category
includes each condominium unit in a multiunit dwell-
27
ing structure, plus each condominium’s share of the Sale Price. See price, sale; price, adjusted sale.
common area, unless the common area is separately as-
Sale, Private. A sale negotiated and concluded privately
sessed.
between buyer and seller, and not offered on the open
Restriction. A restriction is a described limitation on the market.
use of a property.
Sales Comparison Approach. One of three approaches
Reversion. The rights of possession commencing on the to value, the sales comparison approach estimates a
termination of a particular estate. property’s value (or some other characteristic, such as
its depreciation) by reference to comparable sales.
Reversion Factor. See Present worth of 1
Sales Data. (1) Information gathered about the nature
Royalty. (1) A payment made periodically or at irregular
of the transaction, the sale price, and the characteristics
intervals to the owner of a patent or copyright for the
of a property as of the date of sale. (2) The elements of
privilege of exploring for, and/or mining and disposing
information needed from each property for some pur-
of, mineral deposits.
pose, such as appraising properties by the direct sales
Sale, Arm’s-Length. A sale in the open market between comparison approach.
two unrelated parties, each of whom is reasonably
Sales File. A physical or electronic file of sales data.
knowledgeable of market conditions and under no un-
due pressure to buy or sell. Sales Ratio Study. A ratio study that uses sales prices as
proxies for market value.
Sale, Conditional. A sale, especially of chattels, in which
the transfer of title is made to depend on the perfor- Sales Verification Questionnaires. In written or electron-
mance of a condition subsequent to the making of the ic format, these documents are an affirmed or sworn
sales contract and delivery of goods. statement regarding particulars to a sale of real prop-
erty, such as personal property, financing, etc. Typically,
Note: The most common condition is that the remainder of the
these forms are required in states and provinces with
purchase price be paid. Property held under a conditional sales
sales disclosure statutes have been enacted and are filed
contract may be repossessed without foreclosure proceeding, and
prior to recording the deed.
the former holder has no equity or redemption. Compare to mort-
gage, chattel. Sale Terms. The amount of down payment, the interest
on the mortgage, and information on points and other
Sale, Distressed. It is a sale made to meet the immediate
fees involved in a real estate sale. Sales terms are also
and pressing needs of the seller at whatever price the
called “terms of financing” or “financing terms.”
property will bring.
Seller. (1) The seller is the vendor. (2) A person who
Sale, Fraudulent. A sale to defraud the creditors of the
sells or contracts to sell goods. (3) In real property sales
owner of the property, by covering up or removing from
the seller is the grantor who transfers property by deed
their reach and converting into cash property which
or grants property rights through a trust instrument or
would be subject to the satisfaction of their claims. Such
other document.
sales may be voided by Bankruptcy Court.
Screening Codes. Screening codes are used to identify
Sale, Forced. A sale made pursuant to law; usually an
the source of the sales information or how the sale was
auction sale that is involuntary on the part of the owner.
verified and are separate from the validity code.
Sale, Judicial. (1) A judicial sale is one made under the
Sealed Bid. Sealed bid is a method of marketing property
process of a court having competent authority to order
in which each bidder (buyer) is given just one chance to
it, by an officer duly appointed and commissioned to
submit a bid in a sealed envelop, without knowing other
sell, as distinguished from a sale by an owner in virtue of
bid amounts. All such bids are opened at one time. The
his right of property. (2) A court action that enforces a
seller may set a minimum bid.
judgment lien by selling property to pay a debt.
Seller-Financing. (1) A sale in which the seller provides
Sale-Leaseback. A sale and subsequent lease given by the
financing to the buyer typically with a higher rate of in-
buyer back to the seller as part of the same transaction.
terest than market and a lower sale price or a lower rate
Sale, Normal. A sale in which neither the buyer nor of interest than market with a higher sale price. Sales
the seller acts under legal or economic compulsion. In should be adjusted to market. See Contract for Deed.
which both parties are reasonably well informed, and in
Settlor. A settlor is one who transfers to a trustee title
which both are primarily actuated by economic motives.
to property that constitutes the trust estate. Compare
Compare to market value and sale, arm’s-length.
trustee.
Sale of Convenience. A sale designed to correct defects
Short Sale. The bank or mortgage lender agrees to dis-
in the title, create a joint or common tenancy, or serve
count a loan balance because of an economic or finan-
some similar purpose (not an actual sale). Such sales
cial hardship on the part of the mortgagor.
generally re transacted at only a nominal price.
28
Split. See property split. Title Search. An examination of public records to ensure
the quality of the seller’s title to a property. Preparation
Stratify. To divide, for purposes of analysis, a sample of
of an abstract of title requires a complete title search,
observations into two or more subsets according to some
and also for preparation to foreclose on a property in a
criterion or set of criteria.
delinquent tax suit.
Tangible Personal Property. Tangible personal property
Trust. An agreement whereby the owner of property
is personal property that has a substantial physical pres-
(the settlor) transfers legal title to a second party (the
ence beyond merely representational. It differs from
trustee), such property to be held, managed, or disposed
real property in its capacity to be relocated. Common
of for the benefit of a third party (the beneficiary) or the
examples of tangible personal property are automo-
settlor, or both, as set forth in the trust agreement.
biles, boats, and jewelry.
Trustee. A trustee is one who holds legal title on proper-
Tax Sale. A sale of a taxpayer’s property by a public au-
ty under a trust agreement. Compare settlor; beneficiary
thority so that delinquent taxes may be collected from
the proceeds; usually preceded by a period during which Undivided Interest. An interest in a property that is not
the taxpayer can pay delinquent taxes, and followed by a distinct from the interest or interests of one or more
period during which the taxpayer can redeem the prop- other persons as to the time during which the interest is
erty from the purchaser. Also see certificate of redemp- possessory or as to the portion of the property to which
tion; redemption. the interest attaches, for example, the interest of a joint
tenant or a tenant in common.
Tenancy. The act of using or occupying property, espe-
cially real property whose fee title is vested in someone Unit. The property being appraised and everything used
other than the occupant. or useful to the ongoing economic operation of the
business (property). Tangible and intangible personal
Tenancy, Joint. A state of tenancy involving two or more
property is included.
persons owing undivided possessory interests which have
arisen out of a single conveyance, no one of the tenants Validity. The quality of a data element or procedure be-
being free to create interests in the estate without the ing what it should be in terms of some ultimate purpose
consent of the others, and the surviving tenants acquir- or use. Also see integrity. Compare to accuracy, preci-
ing the interests of any tenant who may die. Compare to sion.
tenancy in common.
Value. (1) Value is the relationship between an object
Tenancy in Common. A state of tenancy involving two desired and a potential owner; the characteristics of scar-
or more persons owning undivided possessory interests city, utility, desirability, and transferability must be pres-
that have arisen out of separate and distinct conveyanc- ent for value to exist. (2) Value may also be described
es, any one of the tenants being free to create interest in as the present worth of future benefits arising from the
his or her portion of the estate and the heirs or devisees ownership of real or personal property. (3) Value is the
acquiring the interest of any tenant who may die. Com- estimate sought in a valuation. (4) Any number between
pare to tenancy. positive infinity and negative infinity. Also see market
value.
Tenancy in Severalty. A tenancy in severalty is a state of
tenancy involving one person who owns a divided pos- Verify. To check the accuracy of something. For exam-
sessory interest. ple, sales data may be verified by interviewing the seller
or purchaser of the property, and data entries may be
Tenant. One who holds or possesses a property.
verified by check digits.
Tenement. Tenement is (1) Real property and the rights
Word-of-Mouth. A method of marketing property with-
to ownership, especially those of a permanent nature
out a realtor and/or broker involved. Typically, used for
that relates to and pass with the land. (2) A building in-
selling real property by “for sale by owner” and is more
tended for rental residence.
prevalent in rural areas.
Time-Adjusted Sale Price. The price at which a property
Zoning. Zoning is the exercise of the police power to
sold, adjusted for the effects of price changes reflected
restrict land owners as to the use of their land and/or
in the market between the date of sale and the date of
the type size, and location of structures to be erected
analysis.
thereon.
Title. The union of all elements constitution proof of
property ownership and the instrument that is evidence
of ownership.
29
Appendix A. Sales Verification Questionnaire

Parcel Identification Number ___________________________________ Instrument Number ________________________________
Instrument Type________________________ o Multiparcel Sale o Split Sale Recording Date___________________________
Seller (Grantor) Name Buyer (Grantee) Name

_______________________________________________ _______________________________________________
Mailing ___________________________________________ Mailing ___________________________________________
City/ST/ZIP ________________________________________ City/ST/ZIP ________________________________________
Phone ___________________________________________ Phone ___________________________________________
E-mail ___________________________________________ E-mail ___________________________________________
Brief Legal Description Property/Situs Address _________________________________
_______________________________________________ Name and Mailing Address for Tax Statements
_______________________________________________ _______________________________________________
_______________________________________________ _______________________________________________
_______________________________________________ _______________________________________________
PLEASE ANSWER THE FOLLOWING QUESTIONS:
1. Were there special factors affecting the sale? 10. Were any delinquent taxes assumed by the purchaser?
o Sale between immediate family members (SPECIFY THE RELATIONSHIP) o Yes—Amount $_______________________ o No
11. Were the delinquent taxes included in the sale price?
o Sale involved corporate affiliates belonging to the same parent company o Yes o No o NA
o Sale of convenience (correct defects in title; create a joint or common 12. How was the property marketed? (check all that apply)
tenancy, etc.) o Listed with real estate agent o Displayed a “For Sale” sign
o Auction sale o Advertised in the newspaper o Offered by word of mouth
o Deed transfer in lieu of foreclosure or repossession 13. Was the property made available to other potential purchasers?
o Forced sale or sheriff’s sale o Yes o No
o Sale by judicial order (guardian, executor, conservator) If not, explain ________________________________________
o Sale involved a government agency or public utility _________________________________________________
o Buyer (new owner) is a religious, charitable, or benevolent 14. How long was the property on the market? _______________________
organization, school or educational association 15. What was the asking price? ________________________________
o Land contract or contract for deed 16. What date was the sale price agreed upon?
o Sale of only a partial interest in the real estate _______/_______/________
o Sale involved a trade or exchange of properties 17. What was the method of financing? (check all that apply)
o None of the above o New loan(s) from a financial institution
2. What was the use of property at the time of sale? (check one) Name of lending institution________________________________
o Single family residence o Agricultural land Cash down payment $_________________________
o Farm/ranch with residence o Vacant lot Amount $_____________ Interest rate _______% Term _________
o Condominium unit o Commercial/industrial o Assumption of existing loan(s)
o Other (specify) _____________________________________ Amount $_____________ Interest rate _______% Term _________
_________________________________________________ o Seller financing
3. Was the property rented or leased at the time of sale? o Yes o No Amount $_____________ Interest rate _______% Term _________
4. Did the sale price include an existing business? o Yes o No o Trade of property: estimated value $_________________________
5. Was any personal property (such as furniture, equipment, machinery, livestock, Describe traded property _________________________________
crops, business franchise or inventory, etc.) included in the sale price? o All cash o Not applicable
o Yes o No 18. What was the Total Sale Price $________________
If yes, please describe ___________________________________ 19. Was the sale influenced by any unusual circumstances?
_________________________________________________ o Yes o No
Estimated value of all personal property items included in the sale price $_____ If yes, please explain ____________________________________
6. Any recent changes to the property? o Yes o No _________________________________________________
o New construction o Demolition _________________________________________________
o Remodeling o Additions 20. Is the total sale price a fair reflection of the market value for the real estate on the
Was the work performed by a professional? o Yes o No sale date? o Yes o No If no, please explain ____________________
Date completed _______/_______/________ _________________________________________________
Estimated cost of labor and materials? $ _____________________ _________________________________________________
7. Was there a change in use? o Yes o No
PRINT NAME ______________________________________________
If yes, please explain____________________________________
_________________________________________________ SIGNATURE ______________________________________________
8. Does the buyer hold title to any adjoining property? o Yes o No o GRANTOR (SELLER) Daytime phone (____)__________________
9. Was there an appraisal made on the property? o Yes o No o GRANTEE (BUYER) Daytime phone (____)__________________
o AGENT Daytime phone (____)__________________
30
Appendix B. Questions for Specific Situations
Basic questions—for all follow-up 1031 Exchange

verifications made • Was the reinvestment time nearing an end (pos-
• How was the property marketed (realtor [name sible duress)?
of realtor], word-of-mouth, newspaper ad, for
sale by owner, Internet, etc.)? Internet marketing
• How long was the property exposed to the open (See questions relating to uninformed buyers and sell-
market? ers)
• What was the asking price? • Were both parties an informed, buyer and
seller?
• What was the selling price (or verify the amount
on the sales verification questionnaire)?
Leaseback (commercial/industrial properties)
• What was the condition of the property at the
• Was a leaseback involved in the sale transaction?
time of sale?
• If so, did the leaseback influence the sale price?
• Was there a change in use of the property?
• Was a “fee appraisal” made on the property (if Personal property
so, in what amount)? All the questions are answered in the set of basic ques-
• Was any personal property included in the sale tions.
price (if so, was the amount specified in the
purchase or contract agreement)?
Property characteristic changes
• What is your estimate of the amount of personal • What types of changes were made (repair, re-
property included in the sale price (if the per- modeling, addition or demolition)?
sonal property is not specified in the contract)?
• How much cost was involved (labor and materi-
• Are you aware of any changes to property char- als)?
acteristics that have recently occurred (if so,
when)? • Was the work performed by a professional?
• Was there any undue compulsion to buy or sell?

Related party sales
• Were there any circumstances that might cause • What is the specific nature of the relationship?
the sale to be considered a non-arm’s-length
transaction? • Was the sale price influenced by the relation-
ship?
The following questions should be asked in addition to
the basic questions listed above for the various situations.
Uninformed buyers
• Did you look at other property in the area?
Adjoining property owners
• Was the seller aware of the buyer’s interest in • How long did you search for property in the
the property or need for business expansion area?
(commercial/industrial use)? • Did you talk to local realtors?
Auction sales Uninformed sellers

(Auctioneer and seller are the best source of informa-
• How did you arrive at the sale price?
tion)
• Were there any local offers?
• Was the auction well-advertised?
• Was the auction well-attended?
• Did the seller have the right-of-refusal (a low
bid clause or bid with reserve)?
• How many parties were bidding on the prop-
erty?
31
Appendix C. Partial Listing of Government Agencies
• HUD Department of Housing and Urban Development

• FCA Farm Credit Administration
• FCB Farm Credit Bank
• FSA USDA Farm Service Agency
• FAMC Federal Agricultural Mortgage Corporation (Farmer Mac)
• FDIC Federal Deposit Insurance Corporation
• FHLMA Federal Home Loan Mortgage Corporation (Freddie Mac)
• FHA Federal Housing Administration
• FLB Federal Land Bank
• FLCA Federal Land Credit Association
• FNMA Federal National Mortgage Corporation (Fannie Mae)
• FSLIC Federal Savings &I Loan Insurance Corporation
• GSA General Service Administration
• GNMA Government National Mortgage Association (Ginnie Mae)
• HAP Homeowners Assistance Program (US Army Corps of Engineers)
• MGIC Mortgage Guarantee Insurance Group
• RTC Resolution Trust Corporation
• RFTHP Rural First-Time Homebuyer Program (Federal Home Loan Bank)
— Habitat for Humanity
• USDA Rural Housing & Development Administration
• SBA Small Business Administration
• USMS United States Marshal’s Service
• VA Veteran’s Administration
— • American Housing Trust 1 through 10 (VA holding companies)
— • Vinnie Mac—Vendee Mortgage Trust (VMT 1,2,3,4 VA holding companies)
32
Appendix D. Multiple Parcel Form
Multiple Parcel Form
Jurisdiction: _______________________ Sale No.: ________________
CLASS: _________________________
Sale Date: ___________________________
TYPE: _________________________
SOURCE: _________________________
Sale Price: __________________________
VALIDITY: _________________________
Type = Improved or Unimproved SC = Source Code VC = Validity Code

Parcel ID Number Class Type SC VC Appraised Value
Total Appraised Value
COMMENTS: _____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
Research Analyst: ____________________________ Appraiser: ________________________________________
33
Appendix E. Documentation Form
Sale Verification Form
34
Appendix F. Intangible Personal Property

in Operating Properties
An operating business is often referred to as going con- Nonseverable enterprise assets

cern. These properties may include a component of in- • Assemblage of land, building, tangible personal property into a
tangible personal property in the form of business enter- productive operation
prise value or goodwill. • Image and reputation of the business (service, value, quality,
Going-concern value is derived from a proven business dependability)
operation. It implies that the total enterprise value that • Established customer base, customer acceptance, and public patronage
may be greater than the sum of its real and tangible per- • Trained staff of employees
sonal property parts but does not imply that the busi- • Operating procedures, control methods, and socio-technical systems
ness must be profitable. Typically, going-concern value • Corporate or business values
will fall into one of two groups. • Credit rating and investor confidence
Goodwill is the intangible value of a business enterprise Nonseverable personnel assets

that can be measured by some excess profit by virtue of
• Reputation of owner/manager and staff with customers, suppliers, and
some advantageous position in the marketplace with
the public
little or no competition. Income beyond that required,
• Skill of support staff (technical know-how, sales ability, specialized
providing an economic return on the assets of the busi-
talent)
ness, is a component of goodwill.
• General leadership, administration, customer relations, and skills of
Business enterprise value in general, is can be a product of management
any endeavor where the primary motive is profit and not Assets severable from the enterprise
mere employment for oneself and others. It may also
include the capitalized value of above market rents for • Trademarks, trade names, brand names, trade secrets (formulas, recipes,
malls and super-regional shopping centers (Appraisal methods, etc.)
Institute, 2001). • Copyrights, patents, and technical libraries
• Licenses, franchises, and rights (film, recording, publishing, air, water,
Intangible personal property can fall into three general etc.)
groups (Desmond, 1988). • Covenants not to compete and operating agreements
• Contracts (purchase, advertising, employment, sales)
• Favorable leases below market rent
• Mailing lists, subscription lists, prescription accounts, customer lists
35
Assessment Standards of the International
Association of Assessing Officers
Guide to Assessment Administration Standards
Standard on Assessment Appeal
Standard on Automated Valuation Models
Standard on Contracting for Assessment Services
Standard on Digital Cadastral Maps and Parcel Identifiers
Standard on Facilities, Computers, Equipment, and Supplies
Standard on Manual Cadastral Maps and Parcel Identifiers
Standard on Mass Appraisal of Real Property
Standard on Oversight Agency Responsibilities
Standard on Professional Development
Standard on Property Tax Policy
Standard on Public Relations
Standard on Ratio Studies
Standard on Valuation of Personal Property
Standard on Valuation of Property Affected by Environmental Contamination
Standard on Verification and Adjustment of Sales
To download the current approved version of any of the standards listed above, go to:
http://www.iaao.org/publications/standards.html

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Standard on

Approved November 2010

International Association of Assessing Officers

Printed in the United States of America.

3. Sources of Sales Data..............................................................................................................5

4. Useful Sales Information.........................................................................................................6

6. Documenting the Results of the Verification Process.........................................................13

Appendix A. Sales Verification Questionnaire........................................................................30

Appendix B. Questions for Specific Situations........................................................................31

Appendix C. Partial Listing of Governmental Agencies.........................................................32

Appendix D. Multiple Parcel Form...........................................................................................33

Appendix E. Documentation Form...........................................................................................34

Appendix F. Intangible Personal Property in Operating Properties.....................................35

Standard on Verification and Adjustment of Sales

1. Scope 3. Sources of Sales Data

4.7.5 Sealed Bids 4.10 Type and Terms of Financing

4.7.6 Word-of-Mouth 4.11 Personal Property

• What was the condition of the property at the

5.1 Importance of Sales Verification • Internet marketing

5.3.6 Sales Settling an Estate 5.4.3 Land Contracts

5.4.4 Incomplete or Unbuilt Common Property For example,

6.4 Conclusions/Comments • Personal property (paid by buyer)

• Assumed mortgages (nonmarket rates)

Appendix A. Sales Verification Questionnaire

Seller (Grantor) Name Buyer (Grantee) Name

Appendix B. Questions for Specific Situations

Basic questions—for all follow-up 1031 Exchange

• Was there any undue compulsion to buy or sell?

Auction sales Uninformed sellers

Appendix C. Partial Listing of Government Agencies

• HUD Department of Housing and Urban Development

Appendix D. Multiple Parcel Form

Multiple Parcel Form

Jurisdiction: _______________________ Sale No.: ________________

Type = Improved or Unimproved SC = Source Code VC = Validity Code

Total Appraised Value

Research Analyst: ____________________________ Appraiser: ________________________________________

Appendix E. Documentation Form

Sale Verification Form

Appendix F. Intangible Personal Property

An operating business is often referred to as going con- Nonseverable enterprise assets

Goodwill is the intangible value of a business enterprise Nonseverable personnel assets

Guide to Assessment Administration Standards

Standard on Assessment Appeal

Standard on Automated Valuation Models

Standard on Contracting for Assessment Services

Standard on Digital Cadastral Maps and Parcel Identifiers

Standard on Facilities, Computers, Equipment, and Supplies

Standard on Manual Cadastral Maps and Parcel Identifiers

Standard on Mass Appraisal of Real Property

Standard on Oversight Agency Responsibilities

Standard on Professional Development

Standard on Property Tax Policy

Standard on Public Relations

Standard on Ratio Studies

Standard on Valuation of Personal Property

Standard on Valuation of Property Affected by Environmental Contamination

Standard on Verification and Adjustment of Sales

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Jurisdiction: _______ Sale No.:

Research Analyst: Appraiser: ____________