Tennessee Property Assessment Glossary

Accrual accounting refers to recording the revenues and expenses based on amounts due or owed during the report period, regardless of whether the payment was made or received. In accrual accounting, expenses and revenues are counted at the time of the transaction, not at the time of actual cash transfer. This method counts transactions during the report period when the transaction occurred, regardless of when the payment was made. This is the opposite of cash accounting, which counts a transaction only when there is an exchange of cash. Accrual accounting is a more complex method of accounting, but it provides a more accurate picture of current financial status.

An acre is a unit of measurement for tracts of land. One acre is equal to 43,560 square feet of area, which may be in any shape. One acre is about three-fourths the size of a football field.

Gas exploration and production companies may make cash payments to producers to finance exploration for gas. If any gas is discovered, the company making the advance payment has the right to bid on or buy all or part of the discovered gas. Repayment of the advance is taken in the form of delivered gas.

This definition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State University).

Amortization is the systematic allocation of the cost of an intangible asset (e.g., patent, trademark, or computer software) over its useful life. For example, if something valued at $100 is to be amortized over 10 years, the financial reports will include an expense of $10 for each of the 10 years.

An annotation is a note on a map that describes a specific item, such as the acreage on a parcel of land.

Annuity refers to regular payments over a fixed period of time (for example, payments every month or year for a defined number of years or for life).

Anticipation is an appraisal principle which refers to the perception that value is created by the expectation of future benefits.

According to the principle of anticipation, a property’s value is based on the value that is anticipated in the future. Any expectation of future benefits (for example, future rental income) can affect the appraisal of property in the present time.

The appeal process involves a disputed assessment on locally assessed (all property other than public utility and transportation property) and/or centrally assessed (public utility and transportation property) property, which can be initiated by a taxpayer, entity, attorney, representative of entity/taxpayer, or county official.

For locally assessed property, the review process begins in early spring at the local county assessor level. There are additional administrative appeal rights after this at the county board of equalization, the State Board of Equalization, and the Assessment Appeals Commission. After an appellant has exhausted these administrative appeal rights, they may seek further review before a Chancery Court.

For centrally assessed property, the informal review process begins May through June before the Office of State Assessed Properties. The additional administrative appeal rights begin within 10 days after the first Monday in August in which exceptions may be filed with the Comptroller’s designee. On or before the first Monday in September, the Comptroller files with the State Board of Equalization the assessments made, and at this point appeals can be made to the State Board of Equalization for hearing before an administrative law judge. After the company has exhausted these administrative appeal rights, it may seek further review before the Court of Appeals.

See also:

• administrative law judge
• county board of equalization
• Office of State Assessed Properties
• State Board of Equalization

The Comptroller’s Office publishes an Appeals Handbook to provide assessors’ offices with guidance in the handling of appeals before county boards of equalization and the State Board of Equalization.

The Appeals Handbook includes interpretations of law by legal staff with the Comptroller’s office, discussions concerning valuation methodology prepared by both the Comptroller’s legal staff and appraisers with the Division of Property Assessments, and guidance on common legal and appraisal issues faced by assessors in the appeals process.

An appraisal is the process by which the appraised value of property is determined. An appraised value is the estimate of the most probable selling price of a property. In the appraisal process, physical characteristics are listed (dimensions, construction type, age and condition of buildings, size and features of land) and computer resources are used to assist in the analyses and calculations required to determine the appraised value. An assessor’s experience and appraisal judgment are a factor in any appraisal.

See also:

• computer-assisted mass appraisal (CAMA)

To assess is to value property for the purpose of taxation.

The value of a property for tax purposes is the assessed value. A property’s assessed value is different from its appraised value.

See also:

• appraised value
• assessment ratio
  

An assessment is the process by which an assessed value is determined. The assessed value is the value of a property to which the adopted property tax levy or rate is applied to determine the amount of property taxes related to the property.

A property’s assessment is distinct from its appraisal. The appraisal comes first and the assessment process follows. The assessment process starts by classifying the property (e.g., residential, farm, commercial and industrial, etc.). The assessed value is then calculated by taking the assessment percentage for that classification from the appraised value. The Tennessee assessment percentages are set out in state law:

See also:

• intangible personal property
• real property
• tangible personal property

Property assessors in Tennessee may receive a designation after completing necessary courses of study and training related to the field of appraisal and valuation. The following levels of designations may be obtained by assessors or deputy assessors who have completed the necessary training:

• AAS (Assessment Administration Specialist), a professional assessment designation of the International Association of Assessing Officers
• CAE (Certified Assessment Evaluator), a professional assessment designation of the International Association of Assessing Officers
• Certified General Real Estate Appraiser, issued by the Tennessee Real Estate Appraisal Commission
• CMS (Cadastral Mapping Specialist), a professional assessment designation of the International Association of Assessing Officers
• MAS (Mass Appraisal Specialist), a professional assessment designation of the International Association of Assessing Officers
• PPS (Personal Property Specialist), a professional assessment designation of the International Association of Assessing Officers
• RES (Residential Evaluation Specialist), a professional assessment designation of the International Association of Assessing Officers
• TCA (Tennessee Certified Assessor), a designation issued by the State Board of Equalization
• TMA (Tennessee Master Assessor), a designation issued by the State Board of Equalization

An asset is a resource with monetary value that an individual, corporation, or government owns (or has the rights to) that is expected to have future benefits. Assets can be tangible or intangible. A copyrighted idea or a patented process are examples of intangible assets.

The band-of-investment technique is used to compute a capitalization rate. The respective rates for debt and equity are weighted by the portions of the capital structure represented by debt and equity. Mathematically, it produces the weighted average of the rate for debt and rate for equity.

See also:

• capitalization rate

This definition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State University).

Base-lot method is a method of appraising land parcels in which each parcel to be appraised is compared with another parcel (the base lot) having common characteristics and a known value. The appraiser determines the value of the lot being appraised by judging it against the base lot in terms of size, shape, topography, etc.

Base taxes are amounts of property taxes levied by a county or city the year prior to the date a tax increment plan becomes effective (base year) and limited to the specific parcels now subject to a tax increment plan (redevelopment plan or economic impact plan). Per state statute, base taxes cannot include any portion of taxes used to pay debt service, and for the duration of a redevelopment or economic impact plan, the respective governments will receive their set base tax amounts.

With a redevelopment plan, base taxes are calculated on base year assessed value of tax increment parcels and the current tax rate. With an economic impact plan, base taxes are calculated on base year taxes payable on tax increment parcels. In neither case could the base tax exceed the actual tax levied on tax increment parcels the year before the base year.

See also:

• industrial development board (IDB)
• tax increment financing (TIF)

A board of equalization is a public body (other than a court) with jurisdiction over property tax assessments to ensure constitutional and legal compliance.

All counties in Tennessee have a local board of equalization authorized by law to hear appeals of current year property tax assessments from taxpayers and local governmental entities.

At the state level, the State Board of Equalization hears appeals of decisions made by local boards of equalization and, among other duties, ensures property tax assessments comply specifically with the Tennessee Constitution and state law.

See also:

• county board of equalization
• State Board of Equalization

Capital leases are typically long-term agreements for the use of an asset that has a long economic life, where ownership of the asset usually transfers to the lessee at the end of the lease term. In practice, capital leases are a way to purchase expensive assets over time, and lessees must count the item leased as an asset on their books. Machinery, equipment, and airplanes are examples of assets commonly leased using a capital lease because they are expensive and not likely to become obsolete during the lease term.

Capital leases are the opposite of operating leases, which are for shorter terms and do not transfer ownership to the lessee at the end of the lease term. Operating leases are more common for assets that tend to become obsolete quickly, such as computers or office equipment.

See also:

• operating lease

Capitalization is a process in which future expected income and anticipated rate of return on an investment is used to estimate current value. This process is often used when determining the value of commercial property.

Illustrating the natural and social features of the earth through maps is called cartography.

Capitalization is a process in which future expected income and anticipated rate of return on an investment is used to estimate current value. This process is often used when determining the value of commercial property.

A chattel is an item of tangible personal property that may be easily moved. Chattels are the opposite of fixtures, which are permanently attached to the structure (or too heavy to move) and cannot be easily removed.

The distinction between chattel and fixture is important when selling property; the seller typically removes all chattels but leaves all fixtures when moving out.

Tennessee’s Constitution was amended in 1972 to provide for a classified or fractional system of assessment that computes taxes at different levels of assessment based on current property use. As implemented in Tennessee law, classification is based on the current use of property and, if the property is vacant or unused, on the immediate most suitable use as determined by the county assessor. 

The value of property, as opposed to its classification, is based on the appraisal concept of highest and best use, meaning that a property valuation may ignore the current use of property if a likely purchaser would put the property to a more intensive use to maximize its value.

In Tennessee, for purposes of taxation, all property is divided into three classes: (1) real property, (2) tangible personal property, and (3) intangible personal property.

The three classes are then subdivided into four main subclasses: (1) public utility property, (2) industrial and commercial property, (3) residential property, and (4) farm property.

A common carrier is a business that transports people or freight for other people as the basis for its business. Examples of common carriers include trucking companies, airlines, railroads, FedEx, and the United States Postal Service. Non-exempt common carriers are examples of public utility property designated by Tennessee statute for central assessment by the Comptroller’s Office of State Assessed Properties rather than county assessors of property.

See also:

• Office of State Assessed Properties

Properties that share the same physical, economic, or other characteristics are said to be comparable. Property assessments use comparable properties in the same locale to help determine value, as comparable properties should have comparable values.

A computer-assisted mass appraisal (CAMA) system is any automated system used to maintain property data, value property, communicate with property owners, and ensure fairness in taxation.

In Tennessee, the Integrated Multi Processing of Administrative and CAMA Technology (IMPACT) system is the CAMA software used across the state. IMPACT allows authorized state and county users to manage property records in a consolidated, statewide system.

Condemnation can mean one of two things:

(1) Condemnation, also called eminent domain, is the right of governments to take private property for public use, with payment of compensation.

(2) Condemnation can also be a declaration by an authority that a structure is unfit or dangerous to persons or other property. The authority often limits or prohibits occupancy of condemned property or can require demolition.

To determine the condition of property, an assessor must make a judgment of the depreciation of an improvement. Forming this judgment is difficult because although the condition of the subject is known, it is difficult to know how differences in condition affect the selling prices of similar assets. Assessors may investigate the condition of comparable properties in determining a given property’s condition.

In real estate, the consideration is what each party gives the other party as part of a deal. When buying a house, for example, buyers usually give an agreed-upon amount of money as their consideration, and sellers transfer ownership of the property as their consideration. The consideration, however, can be any other valuable goods or services on which a buyer and a seller agree.

The principle of contribution requires an appraiser to measure the value of any improvement to a property by the amount it contributes to market value, not by the cost of the improvement itself.

The cost approach is one of the three approaches to valuation and is based on the principle of substitution. In other words, this method assumes that a buyer would pay only the amount it would cost to build a comparable replacement for a given property. Therefore, the cost of land plus construction (taking depreciation into account) is the main metric of market value in the cost approach.

See also:

• income approach
• sales comparison approach

A document (or written legal instrument) that transfers property rights between two parties.

A deed of trust is similar to a mortgage, and is a mechanism by which a third party puts a lien on a property so that if a borrower is unable to meet the requirements outlined by the loan agreement, the third party can use the sale of the property to recover funds for the lender. The home buying process typically starts with a buyer securing a loan, which the lender then protects with either a deed of trust or a mortgage. In Tennessee, lenders use deeds of trust. A lender using a deed of trust rather than a mortgage does not have to go through the court system to sell the home.

In the case of foreclosure, the third party, named as the trustee in the deed of trust, forecloses on the property without court involvement. In Tennessee, foreclosures must be advertised at least 30 days before the sale, held between the hours of 10:00 a.m. and 4:00 p.m., and sold to the highest cash bidder.

Deeds of trust are filed with a county’s register of deeds, which is a constitutional office established by the Tennessee state legislature as the custodian of legal documents pertaining to real property.

A deed of trust is distinct from a warranty deed.

See also:

• deed
• warranty deed

Depreciation is a loss in value of an object or resource. Depreciation is sometimes subdivided into three types: physical deterioration (wear and tear), functional obsolescence (not keeping up with current technologies or tastes), and economic obsolescence (changes in the neighborhood or economy outside of the owner’s control).

Direct capitalization is a method of calculating the present value of a property based on anticipated income (such as rent) for the first year of ownership. In other words, direct capitalization is a method used to convert an estimate of a single year’s income expectation (or annual average of several years of income estimates) into an indication of value in one step. This is accomplished by dividing the income estimate by an appropriate rate or by multiplying the income estimate by an appropriate factor. This method allows anticipated earning potential to determine the present value of a property. Direct capitalization is commonly used to evaluate whether a piece of property is a good investment at the current sales price.

This definition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State University).

The discount rate is a rate of return on capital to convert future payments or receipts into present value. In other words, it is used by investors to calculate how much a series of future payments or receipts is worth as a current single lump sum value.

See also:

• capitalization
• discounted cash flow analysis

In property assessment, discovery is the process in which an assessor identifies all taxable property in the jurisdiction and ensures that it is included on the assessment roll.

An easement is a right given to a person or entity to cross or use land that is owned by someone else for specific purposes. Most residential properties have easements that are used generally for utility access. Another common example of an easement is the right of a property owner with no street access to use a segment of a neighbor’s land to gain access to the road.

An economic development agreement is an agreement between a private entity and a local government agency that permits the use of specified property owned by the local government (or its agencies) for business or commercial purposes of the private entity. Economic development agreements are designed to promote local economic development by reducing property taxes on such property below amounts that would be due if the property were owned by the private entity.

In Tennessee, economic development agreements include, but are not limited to, leases or other agreements with private entities under the industrial development program and redevelopment plans and agreements containing tax increment financing provisions (including development authorities created by private act).

See also:

• industrial development board (IDB)
• tax increment financing (TIF)

Economic, or external, obsolescence is when an asset, on a given property, loses value due to factors outside the property’s boundaries. An asset may experience economic obsolescence due to decreasing demand for a product, changes to the economy, a transformation of the surrounding neighborhood, instability in the labor market, or other factors.

For property assessment purposes, the economic life of a tangible asset is how long it is expected to contribute positively to the value of the total property. This period is typically shorter than its physical life, which is the period during which the asset could physically be left on the property. For example, an updated kitchen adds value to the home only until it becomes outdated again.

Economic rent is generally used synonymously with the term market rent. Economic rent is the average amount of rent charged for a similar property found in a similar market. Economic rent may or may not be the same as the rent paid pursuant to lease terms, as an individual lessee may pay over or under the economic rent rate. Economic rent is the market value of rental income used to calculate a property’s appraisal.

See also:

• market rent

The effective tax rate shows what percent taxes are of the appraised value of property. Taxes are, however, levied using the assessed values of property and different subclasses of property are assessed at different levels: real property for farms and residential property is assessed at 25 percent of appraised value, and industrial and commercial property at 40 percent. The effective tax rate, therefore, is a calculation used to summarize the relationships among appraised value, the assessment level, and the tax rate. For example, in a jurisdiction with an effective tax rate of 1.00 for a class of property, the annual taxes on that property are equal to 1 percent of its market value for the year it was appraised.

See also:

• tax rate

Eminent domain is the government’s power to take private property and convert it for public use or public necessity. Acquiring property through eminent domain requires the government to go through a legal process to purchase the private property at fair market value.

Encumbrances are hindrances that could affect the value of real property because the rights of an owner to change, dispose of, or use the property is restricted. These restrictions are due to contractual obligations, such as easements, condominium controls, or subdivision restrictions.

The equalization process is designed to ensure that all properties in a jurisdiction have been assessed fairly. An appraisal ratio is developed for each county by comparing appraised values recorded for real property to recent sales and/or appraisals. The median appraisal ratio is used to achieve equalization by serving as an adjustment factor to be applied to appraised values of property already recorded at full market value.

According to Tennessee law, an appraisal ratio study for every county is conducted at least every two years, primarily to determine the overall level of appraisal within each assessing jurisdiction in the state.

The basic principle of the sales ratio is measuring the difference between appraised value and market value. On the appraisal date, January 1 of the year of reappraisal, these values, market and appraised, should be similar. As time passes between reappraisals the disparity between these values may increase. This disparity is what creates an assessment ratio or sales ratio. The appraised value divided by the sales price produces the sales ratio.

See also:

• county board of equalization
• State Board of Equalization

Equity is the market value of a property minus any debt the owner has against the property, such as a mortgage or lien. As a property owner pays down the debt on a property, the equity increases. If a property owner has no debt against the property, then the equity is equal to the market value of the property. Equity may also increase or decrease as the value of the property appreciates or depreciates over time due to market changes.

In property assessments, the term equity may also refer to fairness in taxation.

Equity capitalization rate reflects the relationship between a single year’s pre-tax cash flow expectation (or an average of several years’ pre-tax cash flow expectancies) and the equity investment. The equity cap rate, as it is commonly called, incorporates debt (such as a mortgage or other types of financing) and property expenses to provide an accurate estimate of how much profit an investor can expect per year.

 See also:

• capitalization rate
• direct capitalization rate

Property escheats (reverts) to the state when there is no rightful owner and the title automatically reverts to the state. For example, when a property owner dies, and no heir is identified or located, the title may automatically revert to the state. This is a different process than foreclosure, which reverts property to another party other than the state (for example, a bank).

The Tennessee Constitution states that all property is subject to taxation, but allows the Tennessee General Assembly to make an exception for, among other things, government-owned property and religious, charitable, scientific, literary, or educational institutions.

The State Board of Equalization is responsible for making exemption determinations related to all religious, charitable, scientific, and nonprofit educational property.

There are different types of property ownership with different rights and restrictions. Fee simple ownership is when the holder of a title has full rights to occupy and use the property, now and in the future, for an infinite duration. There are no deed restrictions on how the property may be used (although zoning laws or subdivision restrictions may still apply). Property owned in fee simple may be sold or inherited without limitation. Fee simple ownership accords the owner with the greatest amount of rights, and fee simple is the most common (and preferred) type of property ownership.

A field review is when a property assessor views properties in question, sometimes by examining the inside of structures, but more often by simply looking at the exterior. Changes to the property discovered during review may be added to, or subtracted from, the property value. The assessor’s office performs a systematic field review of a portion of the county each year so that during a reappraisal cycle all parcels of property are reviewed.

See also:

• appraisal cycle

Forest land is one type of greenbelt land. Greenbelt is the common term for the properties outlined in the Agricultural, Forest, and Open Space Land Act of 1976. Forest land must be at least 15 acres and have tree growth in such quantity and quality that it constitutes a forest. The assessor may request the advice of the state forester in determining whether the tree growth is sufficient to meet this requirement. In addition, a forest management plan is required for land to qualify as a forest.

Forest lands are assessed at use value (i.e., the property’s current use) as opposed to market value. In other words, a property that qualifies as a forest would be assessed for its value assuming it remains a forest. This assessment would likely be less than the price of the property if it could be developed as commercial or residential property.

Land that qualifies as forest land but also contains a home site can still qualify as forest land. The assessor would simply value the home site at market value and the remaining acreage would be classified and valued as forest land.

See also:

• agricultural land
• greenbelt
• open space land
• use value

The frontage of a given parcel of land is the section that is along a street, road, river, or other traffic artery on which the parcel is said to face.

Geocoding is the process of converting a description of a place, such as a name or address, into a geographic location. This allows information to have both a descriptive element and a corresponding map location. Geocoding is commonly used to place multiple pieces of data into a single map for easy reference; for example, geocoded customer addresses can show a company where its customers are distributed throughout the state.

A geodatabase is a database used to store, query, and manipulate spatial data, created through geocoding. Geodatabases store geometry, a spatial reference system, attributes, and behavioral rules for data.

Greenbelt is the common term for the Agricultural, Forest, and Open Space Land Act of 1976. Greenbelt properties are assessed at use value (i.e., the property’s current use) as opposed to market value. For example, a family farm would be assessed based on the use of the property as a farm, not based on the higher price the property would sell for if purchased for commercial development.

See also:

• agricultural land
• forest land
• open space land
• recapture

Gross income is the total amount of income generated by a property or services before anything is subtracted (such as operating costs). Gross income, gross earning, and gross revenues are frequently used interchangeably.

Health, education, and housing facility boards (HEHBs) are similar in structure to industrial development boards (IDBs), but have different goals. The goal of health, education, and housing facility boards, also called corporations, is to encourage and promote the improvement and maintenance of health and living conditions in a locality. HEHBs are public, nonprofit corporations organized under the laws of Tennessee.

These boards use revenue bonds and other financing to fund the acquisition, construction, development, rehabilitation, and improvement of health, educational, and multifamily housing facilities. Examples of eligible projects under state law include hospitals, universities, nonprofit schools, and multifamily housing developers.

Like industrial development boards, the boards can also enter into payment in lieu of tax (PILOT) agreements that would reduce the property tax burden for organizations and businesses. Only organizations or businesses that provide health, education, or housing benefits to the municipality are eligible to enter into PILOT agreements with HEHBs.

Tennessee law requires businesses, such as hospitals, that are leasing property from HEHBs to report annually to the State Board of Equalization concerning the leased properties by October 1 each year.

See also:

• industrial development board (IDB)
• payments in lieu of taxes (PILOT)
• tax increment financing (TIF)

Tennessee law allows long-term owners of residential properties that have significantly increased in value and are zoned for commercial use (and subject to the correspondingly higher tax rate for commercial properties) to apply for a homebelt assessment. The homebelt assessment is designed to prevent long-term owners of residential property from having to sell their residence because they cannot afford their current tax assessment.

An improvement is anything done to raw land with the intention of increasing its value. Building a structure, for example, is one common type of improvement. Other improvements may include paving, adding fences, or improving drainage.

Income approach is one of the three approaches to value. The income approach uses capitalization to convert the anticipated benefits of the ownership of property into an estimate of present value.

See also:

• capitalization
• cost approach
• sales comparison approach

If an administrative judge or hearing officer hears a case alone, the administrative judge or hearing officer must render an initial order (ruling), which becomes a final order unless reviewed by the State Board of Equalization.

A final order and an initial order or decision must include conclusions of law, the policy reasons for those conclusions, and findings of fact for all aspects of the order, including the remedy prescribed and, if applicable, the action taken on a petition for stay of effectiveness. Findings of fact, if set forth in language that is no more than mere repetition or paraphrase of the relevant provision of law, shall be accompanied by a concise and explicit statement of the underlying facts of record to support the findings.

The final order, initial order, or decision must also include a statement of the available procedures and time limits for seeking reconsideration or other administrative relief and the time limits for seeking judicial review of the final order. An initial order or decision shall include a statement of any circumstances under which the initial order or decision may, without further notice, become a final order.

See also:

• administrative law judge
• contested case hearing
• county board of equalization
• final decision and order

An initial determination is the approval or denial of exemption by the State Board of Equalization for religious, charitable, scientific, and nonprofit educational property.

An approval will identify what is exempt and when the exemption begins. The approval will be sent to the applicant, county assessor, and county trustee and include a copy of the original application. An approval does not transfer or expire, and it can be revoked.

Only property or parts of property used for the qualifying purpose are exempt. Property owners, therefore, receive property tax exemption approvals for the specific properties being used for the qualifying purpose, not all properties they own. In addition, an exemption can be partial based on the assessor’s review and information from the applicant on how much of the property is being used for the qualifying purpose.

An instrument, when referred to in property assessments and real estate, is a formal legal document that outlines an exchange of assets and/or rights. These documents are usually deeds, contracts, wills, or leases.

Jurisdiction has two meanings, both related to scope of authority.

(1) The jurisdiction of a legal or political entity is the extent to which that entity has authority regarding interpreting and applying the law, taxing, and governing. For example, the State Board of Equalization often must establish that the board has jurisdiction over a case before it may hear the case.

(2) Jurisdiction can also mean the territorial range of one’s authority or control. In this case a jurisdiction would be the physical area within certain borders where a legal or political entity has authority.

Leases are written contracts in which the lessor (owner) transfers the rights to occupy and use real or personal property to another (lessee) for a specified time in return for a specified payment (rent).

A legal description of property includes the delineation of dimensions, boundaries, and relevant attributes of a real property parcel that serve to identify the parcel for all purposes of law. The description may be in words or codes, such as coordinates. For a subdivided lot, the legal description would probably include lot and block numbers and subdivision name.

A lien is a legal right to take or hold property of a debtor as payment or security for a debt. In Tennessee, liens are given to a third party in a deed of trust, which outlines the agreement between lender and borrower. If the borrower is unable to fulfill his or her obligations (usually in the form of mortgage payments), the third party is able, through the lien, to use the sale of the property to recover the funds.

A life estate is when a landowner (grantor) gives the right to possess and use property to a specified person (tenant) only during the life of that tenant. The tenant’s rights to the property end at death, when ownership of the property may revert to the original owner or to another person. For example, a daughter may buy her parent’s home but, through a life estate deed, allow her parents to continue to live there for the remainder of their lives. Upon the parents’ deaths, the right to possess and use the property would then return to the daughter or another specified person.

Locally assessed properties are all properties assessed by an official of the local jurisdiction where the property is located. In Tennessee, all property, other than public utility company property, is assessed by elected county assessors of property.

See also:

• state assessed property

A lot is a parcel of land owned or intended to be owned. A tract of land is divided into lots during platting (or mapping). In Tennessee, no plat, which maps the subdivision of an area into lots, may be recorded until it is approved by a local planning commission.

See also:

• plat

A market analysis is the study of real estate market conditions for a specific type of property.

The market approach is a valuation term with a broad meaning. In the broadest use of the term, a market approach would be any valuation procedure intended to produce an estimate of a property’s current market value. In a narrower use of the term, it could be synonymous with the sales comparison approach.

See also:

• sales comparison approach

Market rent is used to determine the value of properties (usually rental properties) in the income approach. When a given property is being valued using the income approach, the market rent is established by gauging the rents of similar properties.

See also:

• income approach

Market value is the amount of money a well-informed buyer would pay and a well-informed seller would accept for property in an open and competitive market, without any outside influence. Tennessee statute provides what is regarded as a legally equivalent definition of value for Tennessee property taxes.

Mass appraisal is the systematic process of valuing a group of properties by using market data, standardized methods, and statistical modeling. Assessors of property often rely on valuation equations, tables, and schedules developed through mathematical analysis of market data. Mass appraisal is one step in developing the assessment roll, the official list of properties that are assessed for property tax purposes within a given jurisdiction. In Tennessee, the assessment roll must be complete by May 20.

Mineral rights are rights to extract ore, petroleum, or other minerals from a property.

A neighborhood is the environment around a property that has a direct and immediate effect on the property’s value.

Obsolescence is a decrease in property value because of changes in demand for similar properties. Common reasons properties lose value due to obsolescence include aesthetic changes/trends, new technology, regulatory changes, and shifts in consumer demand.

See also:

• depreciation
• economic (external) obsolescence
• functional obsolescence

Original cost is the total amount of money required to purchase and acquire an asset. In addition to the purchase price, the original cost includes any taxes, fees, delivery charges, installation expenses, or other costs ancillary to the purchase of an asset. Original cost (and not purchase price) is used to determine the tax basis of an asset.

Ownership is the exclusive right to the use of property. Individuals, groups of people, and other entities can all own property. Property can have a sole owner, or ownership can be split between multiple parties.

A parcel is land, including the resources in and on it, and the buildings and permanent fixtures attached to it. It can be a contiguous area of land or one of a number of lots on a plat; separately owned, ether publicly or privately; and capable of being separately conveyed. A parcel is assigned a numeric or alpha numeric description that identifies it uniquely in each jurisdiction.

See also:

• lot
• plat

A numeric or alphanumeric description of a parcel that identifies it uniquely. In Tennessee, this identification number consists of the map, group, control map, parcel, property identifier, and special interest.

Percent good is an estimate of the value of a property that is expressed as a percentage of its replacement cost after depreciation of any kind has been deducted. For example, a structure that is estimated to be 40 percent depreciated has a percent good of 60 percent. This 60 percent can then be applied to the new replacement cost to find the current value.

Personal property is an asset owned or leased by a taxpayer and used for business or a profession. This excludes real estate and any fixtures, which are considered real property.

There are two types of personal property: tangible and intangible. While tangible property can be physically touched, intangible personal property cannot. Examples of intangible property include ownership in a business and debts.

In Tennessee, all tangible personal property must be reported by March 1. This reporting includes any personal property acquired or disposed of, which is used to create or update a list of tangible personal property for each taxpayer. The value of the property is determined using depreciation schedules in Tennessee law. Thus, taxpayers update their lists of assets and the assessors of property assess the cost of the assets less depreciation.

In Tennessee, tangible personal property is assessed at 30 percent of its value for commercial and industrial property and 55 percent of its value for public utility property, per the classifications set out in the Tennessee Constitution.

The current assessment level for intangible personal property is 40 percent, but Tennessee only assesses the intangible personal property of certain insurance companies. (Bank-owned intangible property is not taxed using property assessments.)

See also:

• intangible personal property
• tangible personal property

Physical deterioration causes a loss in value due to ordinary wear and tear and the forces of nature.

A plat is an official map that is intended to show the division of land into lots or parcels. After recording a plat with the appropriate authorities, that land can then be described for legal purposes by reference to the plat, without additional description. In Tennessee, local planning commissions must approve any plat that has been subdivided into lots before it is recorded.

See also:

• lot

In Tennessee, for purposes of taxation, all property is divided into three classes: (1) real property, (2) tangible personal property, and (3) intangible personal property.

See also:

• classification

A property line is the boundary line that defines a lot or parcel of land.

Tennessee’s property tax is one of the oldest and most significant sources of revenue for local governments. Tennessee’s Constitution authorizes counties and municipalities to levy a tax on three classes of property – real, tangible personal property, and intangible personal property – based on the value of the property.

Counties in Tennessee are authorized to levy a property tax, based on the value of the property within the county’s boundaries. The county assessor of property is responsible for regularly determining the assessed value of properties for tax purposes.

Not all municipalities in Tennessee levy a property tax.

See also:

• appraisal
• assessment
• reappraisal cycle

Public property is any government-owned property, and is exempt from taxation. This includes all property of the United States, the State of Tennessee, any county, or any incorporated town, city, or taxing district in the state that is used exclusively for public, county, or municipal purposes.

Public utilities include railroads, private cars, buses, airlines, trucks, barge lines, electric companies and cooperatives, telephone (including cell phone) and telegraph companies, pipeline and gas companies, water and sewerage companies, and power transmission companies.

Federal laws prohibiting tax discrimination against certain kinds of public utility property have effectively lowered assessment rates for railroad, airline, and motor carrier property from 55 percent (the assessed value for public utility properties) to 40 percent, the same rate as industrial and commercial property.

Quality class is a subjective classification of a structure by an appraiser, intended to describe structures with high quality building materials, workmanship, architectural attractiveness, and design. Quality class, or grade, is the key variable in most cost schedules. Cost schedule refers to charts or tables constructed to assist in estimating the replacement cost new (RCN) of a structure based on factors such as quality class and size.

See also:

• replacement cost new (RCN)

A ratio study is a study of the relationship between appraised or assessed values and market values. The goal in ratio studies is to determine the level and uniformity of the appraisals or assessments for a given jurisdiction.

In Tennessee, ratio studies are compiled and analyzed to create the appraisal ratio report, which is published by the Comptroller’s Division of Property Assessments.

See also:

• appraisal ratio report

Real estate is the physical parcel of land and all improvements permanently attached or fixed to the land.

Real property is one of the three classes of property subject to taxation in Tennessee, as specified by Article II of the Tennessee Constitution.

Real property is defined by state law to include land, structures, and improvements on land, certain mobile homes, and machinery and equipment affixed to the land.

Real property is subdivided into four subclasses, also specified in the Tennessee Constitution. Properties are assessed at a percentage of their appraised value based on preset assessment percentages for each subclass. The Tennessee Constitution provides for the following preset assessment percentages:

See also:

• intangible personal property
• public utilities
• tangible personal property

Reappraisal is the mass appraisal of all property within a jurisdiction completed at the end of a reappraisal cycle. Not all properties are reappraised each year, but all properties in a jurisdiction must be appraised or reappraised once within a reappraisal cycle. Between reappraisals, a property’s appraisal amount remains constant, with the exception of properties that have changed significantly due to new buildings, additions, demolitions, etc.

Recapture, in general, is the recovery of a capital investment. More specifically, it is the portion of the net operating income or the cash flow that provides for the periodic repayment of invested capital. Recapture may also be achieved, wholly or in part, through resale of the property. The words depreciation and amortization are sometimes used as synonyms for recapture. However, depreciation is also both an accounting term and a word that means a loss from original value, and amortization is commonly used to signify debt retirement. Recapture has no such multiple meanings, and is therefore more desirable for use in income appraisal.

See also:

• greenbelt
• rollback tax

This definition is reproduced from Glossary of Terms Used in the Valuation of Centrally Assessed Property for Ad Valorem Tax Purposes (compiled by the National Tax Association and Wichita State University).

Residual value refers to the value of an asset after the term of a lease expires. As an asset is used, its value depreciates. At the end of the lease term, the asset has a residual value that represents what it would cost to buy the asset at that point. Estimates of residual value may be used in calculations to determine rental payments and lease terms.

See also:

• asset
• capital lease
• operating lease

Tennessee law allows property held and used purely for religious, charitable, scientific, literary, or educational purposes to be exempt from property taxes. The property owner must file for a property tax exemption from the State Board of Equalization. The SBOE may revoke an exemption on its own or following a concern or complaint brought by a county official, including the assessor, or other person regarding an exempt property.

Grounds for revocation are fraud, misrepresentation, erroneous information, change in use, and abandonment of property. The revocation process can be initiated by the SBOE or a county assessor, or once a concern or complaint regarding an exempt property is received.

The review begins when SBOE attempts to contact the property owner in response to a complaint. Upon completion of the review, all relevant parties (complainant, property owner, assessor, trustee) are notified whether there is probable cause to revoke. If there is probable cause to revoke, the SBOE will inform the owner of their right to request a hearing before an administrative law judge (ALJ). The SBOE will then advise the assessor that the property should not be returned to the tax roll until SBOE receives an order from the ALJ and forwards the file to the Administrative Procedures Division of the Tennessee Secretary of State’s Office for final disposition. If a hearing is not requested within 90 days, the ALJ issues an order of revocation, but if a hearing is requested, the ALJ issues an appropriate order after holding a hearing.

Right-of-way is the right of passage through property. The term can have two specific meanings:

(1) A right-of-way can be an easement that allows passage through a property that benefits owners of other lots or other specific parties because it connects them to roads or other points of interest.

(2) Land crossed by a railroad or public utility, whether owned by the railroad or utility company or used under an easement agreement, is also called a right-of-way.

A rollback tax, or rollback assessment, is charged to a greenbelt property owner when the property no longer qualifies as greenbelt, and thus is no longer eligible for a reduced assessment. In the greenbelt program, the value of land is based on its current use as agricultural, forest, or open space land rather than the current market value for similar properties. Use value is determined by a statutory formula that blends farm income and market data. This calculation is performed by the Division of Property Assessments.

If property is disqualified and removed from the greenbelt program, it usually triggers rollback or recapture of some of the taxes saved. The rollback tax in most cases is the difference in the taxes under greenbelt versus what they would have been at market value for the previous three years. Greenbelt property is unique in that it is valued based only on the amount it would be sold for if it were required to remain as agricultural land instead of being based on how much a buyer would pay if the property could be developed in any other way.

See also:

• agricultural land
• greenbelt

One of three approaches to value, the sales comparison approach estimates the value of a property or improvement in reference to comparable sales. This method entails comparing the property being appraised to similar properties that have sold for known prices to estimate value. The appraiser identifies comparable properties sold recently that also have relatively similar size, quality, use, and amenities. Some adjustments can be made to account for differences between the property being appraised and the homes used as comparison.

See also:

• cost approach
• income approach
• market approach

Sales ratio measures the difference between appraised value and market value. It is calculated by dividing the appraised value of a property by the sales price of that property. In Tennessee, on the appraisal date (January 1 of the year of reappraisal), market and appraised values should be similar. As time passes between reappraisals, the disparity between these values may increase. This disparity is what creates a sales ratio other than 1.00 (100 percent). These ratios are used to develop the appraisal ratio report.

See also:

• appraisal ratio report
• appraised value
• market value

The situs is the actual or assumed location of a property for purposes of taxation. In personal property, situs may be the physical location of the property or, in the instance of highly mobile property, the more or less permanent location of the property owner.

Split classification rules apply to those situations where a parcel of real property is used for more than one purpose and it is necessary to assign different subclassifications and assessment percentages to each use. 

Stratification refers to the division of samples of observations into two or more subsets according to some criterion or set of criteria. Such a division may be made to analyze different property types, locations, or characteristics to better understand how these differences affect values. This type of data analysis can help develop appraisal models that assist with mass appraisals.

A structure is any man-made improvement that rises above ground level on a parcel or lot of land.

A subclass refers to a group of properties within a class. In Tennessee, the three classes are subdivided into four main subclasses: (1) public utility property, (2) industrial and commercial property, (3) residential property, and (4) farm property.

See also:

• classification

The property being appraised is sometimes referred to as the subject property; this is another way of saying which property is the subject of the appraisal.

The substitution principle states that a potential owner will pay no more for a property than the price for a property of similar usefulness. In other words, a property’s value tends to be set by the cost of acquiring an equally desirable substitute. The substitution principle is the basis for the cost approach to valuation.

See also:

• cost approach

Tangible personal property is a subcategory of personal property. Personal property is an asset owned or leased by a taxpayer and used for business or a profession. Generally, personal property can be moved and taken out of a space, whereas real property is affixed to the land or structures. Tangible personal property includes but is not limited to, furniture, fixtures, machinery, equipment, vehicles, raw materials, and supplies. It is all movable items not permanently affixed to or part of the real estate. It is the opposite of intangible personal property, which is personal property, like business ownership and patents, that is not concrete and cannot physically be touched.

In Tennessee, tangible personal property is assessed at 30 percent of its value for commercial and industrial property and 55 percent of its value for public utility property.

See also:

• classification
• intangible personal property
• property class
• real estate

The tax base is the total asset value to which the tax rate or rates are applied to determine the taxes owed by a person or a group of persons. The tax base for property taxes, for example, is the total assessed value of all properties subject to taxation.

A homeowner’s tax bill is that amount of money he or she must pay in property taxes. In Tennessee, homeowners can calculate their tax bill by multiplying the assessed value of property by the tax rate in the property’s city and county. Assessed values can be found by multiplying the appraised value of the property (which is public record) by the assessment ratios for Tennessee.

See also:

• assessment
• assessment ratio
• tax rate

Tax levy can have two related meanings:

(1) The act approved by a legislative body that sets either the amount of tax on a specific good or asset or the tax rate to be applied to a predefined tax base.

(2) The total amount of taxes authorized by a legislative body. With property taxes, for example, the tax levy is the amount collected from homeowners. The total taxes due are calculated by applying the tax rate to the properties’ assessed values.

The tax rate describes the amount of taxes paid per $100 of assessed value. The assessed value is a portion of the appraised value as outlined by state law. It is distinct from the effective tax rate, which shows what percent taxes are of the appraised value of property.

In some counties, the basic county tax rate is distinct from any additional tax rate set by cities or special school districts within the county. The total tax rate combines all applicable tax rates for the jurisdiction.

See also:

• effective tax rate

A tax roll is an official list showing the amount of taxes charged against each taxpayer and/or each property within a jurisdiction.

A tax sale occurs when a taxpayer’s property is sold by a public authority so that delinquent, or unpaid, taxes may be collected from the proceeds. Taxpayers can pay delinquent taxes prior to a scheduled tax sale, and they have a specified time period after the sale in which they can redeem the property from the purchaser.

A title is the legal instrument that serves as evidence of ownership.

See also:

• deed
• instrument

Topography is the contour of the land’s surface. A land’s topography may be, for example, gently rolling, mountainous, or flat.

Topology is a set of rules in mapping technology (such as geographic information systems, or GIS) that when coupled with editing tools and techniques, enables a geodatabase to accurately model geometric relationships. Topology helps determine how different types of geographical data interact and share a geographic space. For example, one rule may be that all parcel boundaries should be covered by a parcel line.

See also:

• geocoding
• geodatabase

Tourist development zones (TDZs) are high tourism areas in which improvements would likely bring more industry and increased revenue. While state government is generally entitled to 75 percent of all sales tax revenue generated in Tennessee’s municipalities, the state foregoes its portion of the sales tax in a designated TDZ so that the area can be developed.

In Tennessee, municipalities with a TDZ must annually document any costs of development or improvement projects to ensure that the state’s share of the sales tax is being used appropriately. The Commissioner of Revenue reviews the documentation, confirms TDZ expenditures, and then notifies the Department of Economic and Community Development.

In property terms, a trust is an agreement in which the owner of property (the settlor) transfers legal title to a second party (the trustee), with later benefits to either the settlor or a third party (the beneficiary). The trust agreement outlines how the trustee handles, manages, and disposes of the property. Usually a trust for property is in place so that after the settlor dies, the trustee transfers ownership to the beneficiary without having to go through the longer probate process.

USPAP is an annual publication from the Appraisal Standards Board of The Appraisal Foundation. Its description is as follows: “These Standards deal with the procedures to be followed in performing an appraisal, review or consulting service and the manner in which an appraisal, review or consulting service is communicated. Standard 6 sets forth criteria for the development and reporting of mass appraisals for ad valorem tax purposes or any other universe of properties.”

Uniformity in taxation refers to the equal sharing of the tax burden so that all similar property is taxed at the same rate. Uniformity in taxation requires:

• a standard property assessment process,
• a standard rate of taxation, and
• all property be subject to taxation, so that all similar property may be taxed the same.

In Tennessee, the State Board of Equalization ensures that property tax assessments meet state constitutional standards of uniformity through the board’s administrative policies and appeals process.

A unit of comparison is a measurement that breaks down the price of a whole into smaller uniform units so it can be compared to another property that can also be broken down into those same units. For example, a home’s price could be broken down by square feet. This unit of comparison would allow properties to be compared based on their price per square foot. Units of comparison are also used to estimate the value of a given property in comparison to other properties for sale or recently sold.

Unit value has two possible definitions:

(1) The value of a section of property if it were to be split into similar parts. For example, value per square foot is one type of unit value; or

(2) An appraisal of an integrated property as a whole without any reference to the value of its component parts.

Use value has two similar definitions:

(1) The value of property based on a specific use, which is not necessarily the same as the value of the property if it could be developed or used in the most profitable way. For example, the use value of land when it can only be used as farm land may be less than the highest and best use value of the land if it could be developed into multi-use apartment complexes; or

(2) Can refer to property that is entitled to a different assessment than similar properties in the area, based on its use. Examples of properties that may be assessed at use value under state law include agricultural land, open space land, and forest land.

See also:

• agricultural land
• greenbelt
• highest and best use

Value can have several meanings relative to property assessment:

(1) The relationship between an object desired and a potential owner is the object’s value. The characteristics of scarcity, utility, desirability, and transferability create value for the desired object.

(2) The present worth of future benefits arising from the ownership of real or personal property.

(3) The estimate sought in a valuation.

Value in exchange has multiple meanings:

(1) The amount an informed purchaser would offer for property under given market conditions.

(2) The concept that states value is based on the ability of property to elicit the exchange of another asset, such as money, in trade.

Value in use is the value of property when assessed based on a specific use. This is distinct from the highest and best use principle, which looks at property values if the property were put to its most profitable use. Value in use is most often used in Tennessee for the valuation of greenbelt land.

See also:

• agricultural land

The most common type of property deed, a warranty deed is an instrument for conveying property that has good and marketable title. When a property owner sells his property using a warranty deed, he warrants that he owns the property and has the right to convey it to the buyer.

Other types of deeds transfer property without providing a warranty that the seller owns the property and has the right to sell or transfer the property.

See also:

• deed

Zoning is the regulation by a governing body to restrict landowners’ use of their land. Zoning regulations can also restrict the type, size, and location of structures to be erected on the land.