Glossary

A-C | D-F | G-I | J-L | M-O | P-R | S-U | V-Z

Grandfathered Use
An existing use that does not conform to current restrictions, usually zoning, but is allowed by right of its existence prior to the creation of the current restrictions.

Gross Rent Multiplier
A factor derived by dividing the selling price of a property by its gross rents, either monthly or annually, which is used as a unit of comparison to estimate subject value in an appraisal.

Highest And Best Use
The use or uses of a property, chosen from various possible uses, that generates the highest most probable market value, as limited by market demand and supply, the property’s own characteristics, physical and economic feasibility, location, access, utilities, environmental hazards, “grandfathered” rights, and pertinent legal restrictions. Thus, anything that can affect value can affect highest and best use. Further, it is a market driven concept and does not take in to consideration non-economic subject property uses, such as: parks, open space, public schools, libraries, athletic fields, etc., except as they may otherwise impact value. Its focus is upon what the property can sell for in the marketplace, even if a non-economic use is very desirable. For example, if it is found that a subject property has 4 potential uses: A, B, C, and D, and that use A generates a most probable market value of $100, use B $90, use C $80, and use D $100, then the highest and best use of this property is both A and D.

Improvement
Man-made additions to real property, such as: buildings, fencing, utilities, septic, etc. Improvements tend to increase value of vacant land but not necessarily.

Income Approach
One of the 3 major approaches to value estimation. It is based on the idea that a property’s ability to generate net income creates value. That is, a future net income stream commands a price in the market place for which there are buyers and sellers. This relationship can be expressed as follows:

V = I/R

where: V = value of the property or investment

I = net income generated over a given time period

R = rate of return, aka capitalization rate

So, in order to estimate value by way of the Income Approach, two components need to be established: annual net income and rate of return. Of course, since it is a simple equation, as long as any two components are known, the third can be calculated.