Valuation vocabulary sits directly on top of the math section. The exam wants you to know which approach applies to which property type, and to keep an appraisal distinct from a comparative market analysis — a salesperson prepares a CMA, a licensed appraiser prepares an appraisal.
13 terms you need to know
- Appraisal
- An estimate of a property’s market value, prepared by a licensed appraiser using approaches like sales comparison, cost, and income capitalization.
- Assessed Value
- The value placed on property by a municipal tax assessor for the purpose of calculating property tax. Not necessarily market value.
- CMA (Comparative Market Analysis)
- A broker’s estimate of a property’s likely sale price based on recently sold comparable properties. Not a formal appraisal.
- Capitalization Rate
- Net operating income divided by property value. Used to estimate value of income property.
- Comparables (Comps)
- Recently sold similar properties used to estimate the value of a subject property in a CMA or appraisal.
- Conformity
- An appraisal principle holding that property reaches maximum value when surrounded by similar properties.
- Depreciation
- Loss in property value from physical wear, functional obsolescence, or external factors. Also a tax deduction for income property owners.
- Gross Rent Multiplier (GRM)
- Sale price divided by monthly gross rent. A quick valuation tool for small income properties.
- Highest and Best Use
- The legally permissible, physically possible, financially feasible, and most productive use of a property.
- Income Approach
- An appraisal method that values property based on the income it generates — most appropriate for commercial and investment property.
- Mill
- One mill = $1 of tax per $1,000 of assessed value. A 25-mill rate on a $100,000 assessed value = $2,500 annual tax.
- Net Operating Income (NOI)
- Property’s gross income minus operating expenses (before debt service and income tax). Used in cap rate calculations.
- Sales Comparison Approach
- An appraisal method that estimates value based on recent sales of similar properties, adjusted for differences.
Commonly confused
Appraisal vs CMA
A licensed appraiser produces an appraisal, which is a formal opinion of value. A salesperson produces a comparative market analysis to help price a listing. Calling a CMA an appraisal is a licence-law problem.
Market value vs assessed value
Market value is what a property should sell for in an arm's-length sale. Assessed value is set by the municipality for tax purposes and is often a fraction of market value.
Cap rate vs GRM
Cap rate uses net operating income, after operating expenses. GRM uses gross rent and ignores expenses entirely, which makes it a quick screening tool rather than a valuation method.
How this is tested
Keep studying
- The capitalization rate formula
- The gross rent multiplier formula
- NY Real Estate Math Cheat Sheet
- Full NY Real Estate Glossary — all 161 terms
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