Chris Sigg, an associate in our New Canaan office, knows his real estate jargon to the T. He decided there were way too many nebulous, geeky real estate terms littering news sites and blogs, and that homebuyers and sellers have a right to know what they really mean. So, Chris took some time to write a piece describing some of the most used, confusing real estate jargon people likely encounter everyday- Assessed Value, Market Value, Liquidation Value, Cost Approach and a few others that you will find out about while reading his awesome post! For more information on Chris, check out his blog.
This is jargon that is confusing and can often have the effect of glazing over of the eyes when the topic is inserted into a conversation of those not in the real estate industry. I will explain in plain language if that is possible.
Assessed Value: this is the value of the land and the building that sits on it. This is used for tax purposes. It does not mean the property and land will sell for this price.
Market Value: (Fair Value) is the true underlying value. This is the price an asset would trade in a competitive market.
Liquidation Value: This is the price a property would get in these conditions. Short time period to sell. Limited time to market the property. Seller needs to sell and the buyer is motivated.
Appraised Value: (mortgage valuation) used as a prequalification factor in the issuance of a loan. Low appraised value to market value makes procuring a loan difficult because the loan amount seems too high with respect to the value.
Value Comparisons : Cost Approach is used on newer structures. What would the cost be to buy the land and build or renovate the house on the property.
Sales Comparison Approach: This is based on principles of substitution. Example: House A is 3000 square feet and recently sold for $500,000. House B is on the market in the same neighborhood and its also 3000 square feet with an in ground heated pool. Using the cost of the recently sold house $500,000. and add the pool cost minus depreciation for age unless its new +30,000. House should be listed at $530,000. Other factors to be considered in the comparison data are house age, price per square foot, pending sales, current listings similar to the property, and other market adjustments for relevant data.
What are some other real estate terms that you think can be confusing to homebuyers and sellers?