Appraisal Institute to Arm’s Length Transaction

 

Appraisal Institute

Formed from the union of the American Institute of Real Estate Appraisers and the Society of Real Estate Appraisers — and formerly affiliated with the National Association of Realtors (NAR) — the Appraisal Institute is a national organization dedicated to the promotion of ethics and professionalism among appraisers. Its members receive the MAI (Member Appraisal Institute) and SRA (Senior Residential Appraiser) designations.

Appraisal Review

A process conducted by many lenders, which formally re-examines the appraisal report submitted by a mortgage broker or loan officer. The appraisal review is normally conducted by an independent appraiser or an in-house specialist employed by the lender.

Most residential lenders use two types of appraisal reviews: a “desk review” is an internal analysis of the appraisal report by a reviewer; a “field review” will supplement the desk review with a field inspection of the property’s exterior and neighborhood, as well as those of the comps used to arrive at a value. If the appraisal review finds problems with the submitted appraisal report or arrives at lower market value for the subject property, the underwriter may reject the loan application or decrease the approved loan amount.

Appraised Value

The value of a specific property as established by an appraisal. To arrive at the appraised value on typical residential properties, the appraiser will place the greatest weight on the recent sale prices of comparable properties and, to a lesser degree, the cost to rebuild the existing property (plus cost of the land but minus the depreciation for age).

With investment properties, appraisers will also consider the income generated by the subject property and other comparable investment properties. The appraisal value is normally only acceptable for a six-month period.

Appraiser

Professional who conducts appraisal inspections and produces appraisal reports on properties. Most states and lenders require real estate appraisers to be properly licensed.

Appreciation

The increase in a property’s market value. This normally results from population growth, scarcity, or improvements to the property or its area. The greatest effect on a property’s appreciation rate will be the neighborhood and its marketability or public demand.

Appropriative Water Rights

See the Prior Appropriation Rights entry.

Approval Commitment

With mortgage loans, the approval commitment is an official notice from the lender that the application has been fully approved. The approval commitment is often called a loan commitment and may contain closing conditions.

Standard closing conditions include continued maintenance of income and credit qualification, as well as submission of supporting documents or affidavits. Approval commitments for residential loans typically have expiration dates of 30 to 90 days from the underwriter’s approval.

Appurtenance

Equipment or fixture attached to a real estate property that becomes an integral part of that property. For example, light switches and electrical outlets are technically fixtures. But when they are installed, they become part of the house and cannot be legally removed, without specific consent from the property owners.

Appurtenant Easement

A type of easement that runs with the land and transfers with the title. For example, the owner of a landlocked property has an appurtenant easement to go through a neighbor’s property. If the landlocked property is sold, the easement continues with the title to the new owner.

By comparison, easements in gross are held by individuals and remain only for the life of one of the parties involved.

APR

See the Annual Percentage Rate entry.

Apron

Construction term referring to the decorative molding placed beneath window stools or sills. It effectively covers the bottom joint between the window frame and the wall. Aprons can be found in older style homes, but are no longer common with modern homes.

Aquifer

The underground source of water for most wells and springs, aquifers flow below ground in cavities under the earth. Aquifers are typically contained above a layer of rock, gravel or sand, capable of carrying water.

Arbitrage

The investing strategy of borrowing funds at a lower interest rate and then re-investing it into an instrument or project producing a higher rate of return. The difference between the two rates is the investor’s arbitrage profits.

For example, some speculators have taken equity loans or credit lines against their own homes and used that money to invest in stocks or bonds that yield a higher rate of return. However, this is a small and minor variation of arbitrage investing. Institutional investors borrow millions or billions of dollars at low rates and then try to invest them in higher-yield bonds or equities.

Arbitration

An extra-judicial (out-of-court) procedure for settling disputes, with the help and judgment of an impartial third party. Some contracts require that complainants agree to first go through arbitration before filing a lawsuit.

Arbor

A garden area, platform or seating that is shaded by vines (on a trellis), trees or shrubs.

Arch

A semi-circular structure that has been in use since ancient times, when it was discovered to have great ability to support significant greater weight.

Architect

Individual or firm responsible for creating the blueprints, drawings and specifications required to design an improvement.

Architectural Fee

Fees charged by an architect for his or her service. Similar to some real estate attorneys and brokers, architects typically charge either by the hour or a flat rate for generic building designs. However, some architects will also charge according to a percentage of the total budget or by the square foot, especially when the architect will be involved with the management of the project’s construction.

Area of Refuge

An area of refuge is an added safety measure added to large buildings for the purpose of keeping occupants safe during a fire or emergency. If a safe evacuation is not possible, an area of refuge provides space for individuals to await rescue.

An area of refuge will need a reliable supply of fresh air, usually outside air piped in through pressurized ductwork that can operate even during a fire. If electricity is crucial for the area of refuge, such as with surgery rooms, the area of refuge must have circuit integrity systems installed. Panic rooms can be considered an area of refuge.

 

Arm’s Length Transaction

A transaction in which the parties involved are not related or previously involved. Transactions between family members and relatives are normally not considered arm’s length. Transactions between friends, colleagues or individuals with a previous or existing relationship, may or may not be arm’s length.