Ch 6 The Three Approaches To Value

Front 1

What are the three approaches to value?

Back 1

Cost approach, sales comparison or market approach, and income approach

Front 2

This is the basis for cost approach to value. A person will pay no more for building than the cost of constructing an equally desirable alternative

Back 2

The principle of substitution

Front 3

The cost of constructing using current construction methods and materials a substitute structure equal to the existing structure and quality and utility. This is generally used for mass appraisal purposes.

Back 3

Replacement cost

Front 4

The cost of constructing, as closely as possible, the exact replica of the existing structure

Back 4

Reproduction cost

Front 5

This is expenditures of labor, utilities, equipment, the materials used to construct the improvement, and the contractors profit and overhead

Back 5

Direct costs

Front 6

These are expenditures for items other than labor and materials such as financing, Interest on a construction loan, Taxes and insurance during construction, etc.

Back 6

Indirect costs

Front 7

This is a market-derived figure that represents the amount an entrepreneur expects to receive in compensation for his or her risk and expertise associated with the development. This is the difference between the total cost of development of the property and its market value after completion

Back 7

Entrepreneurial profit

Front 8

Name the three methods for estimating cost

Back 8

Comparative (unit area or volume), quantity survey, unit in place

Front 9

This method of estimating cost is the most efficient method for mass appraisal system, that uses sq ft as a base. This method assumes there are numerous similar buildings that can be grouped by design

Back 9

Comparative (unit area or volume)

Front 10

This method of estimating cost includes a complete cost itemization of labor, materials, overhead, and profit necessary for the construction of the building. Because of the large amount of detail work and time involved appraiser seldom use this method.

Back 10

Quantity survey

Front 11

This method of cost estimation is a modification of the quantity survey method. Cost of labor, materials, overhead and profit are combined into a unit cost for each portion of the building. This method helps the appraiser compute the cost of a building when the comparative method isn’t practical

Back 11

Unit-in-place

Front 12

What are the four steps to the cost approach process?

Back 12

1) Value the land as if vacant

2) determine cost of on-site development

3) estimate replacement or reproduction costs

4) deduct total depreciation costs

Front 13

What does OSD stand for?

Back 13

On site development which includes excavation, grading, backfill, gravel drive, and water and sewage disposal systems

Front 14

What does DRC stand for?

Back 14

Depreciated replacement or reproduction cost

Front 15

What type of accrued depreciation is considered incurable?

Back 15

External obsolescence

Front 16

In physical deterioration what is considered curable items in need of immediate repair?

Back 16

Deferred maintenance

Front 17

Give some examples of short-lived items

Back 17

Roofing, paint, floor covering, water heater, etc.

Front 18

Give some example of long-lived items

Back 18

Framing, wiring, plumbing etc.

Front 19

If the Cost to repair or replace an item is greater than the value added by the repair or replacement it is considered this.

Back 19

Incurable physical deterioration

Front 20

This describes a component or system that exceeds market requirements and adds less value than the cost of the component. Examples include oversize heating system, excess plumbing features etc.

Back 20

Superadequacy

Front 21

What type of accrued depreciation is considered incurable?

Back 21

External obsolescence

Front 22

In physical deterioration what is considered curable items in need of immediate repair?

Back 22

Deferred maintenance

Front 23

Give some examples of short-lived items

Back 23

Roofing, paint, floor covering, water heater, etc.

Front 24

Give some example of long-lived items

Back 24

Framing, wiring, plumbing etc.

Front 25

If the Cost to repair or replace an item is greater than the value added by the repair or replacement it is considered this.

Back 25

Incurable physical deterioration

Front 26

This describes a component or system that exceeds market requirements and adds less value than the cost of the component. Examples include oversize heating system, excess plumbing features etc.

Back 26

Superadequacy

Front 27

This describes a component or system that is substandard or lacking. Examples include poor design (lack of closet space, ceilings too high or too low for room arrangement)

Back 27

Deficiency or inadequacy

Front 28

What is GRM?

Back 28

Gross rent multiplier which indicates properties typically sell for 120 times the monthly rent

Front 29

Follow these five steps in the sales comparison process

Back 29

1) research and select sales of comparable properties

2) document and confirm sales data

3) select relevant units of comparison

4) compare sales properties to the subject and make appropriate adjustments

5) Reconcile value indications an estimate value of subject property

Front 30

The sales comparison grid is known as a URAR and stands for what?

Back 30

The uniform residential appraisal report

Front 31

The sales comparison grid is known as a URAR and stands for what?

Back 31

The uniform residential appraisal report

Front 32

What is GIM?

Back 32

Gross income multiplier and is a capitalization technique

Front 33

The sales comparison grid is known as a URAR and stands for what?

Back 33

The uniform residential appraisal report

Front 34

What is GIM?

Back 34

Gross income multiplier and is a capitalization technique

Front 35

What does EGI stand for?

Back 35

Effective gross income. This is the (potential gross income/rent ) minus (vacancy and collection loss) add (miscellaneous income) = EGI

Front 36

What does NOI stand for?

Back 36

Net operating income. This is the (effective gross income) minus (operating expenses) minus (reserves for replacement) equals NOI

Front 37

What is the difference between a net lease and a gross lease

Back 37

In a net lease the tenant pays all the taxes and operating expenses, and a gross lease the landlord pays all the taxes and operating expenses

Front 38

What does RCN stand for?

Back 38

Replacement cost new.

Front 39

What does IRV stand for? And what is the formula?

Back 39

Income rate value

Income = rate x value

(V = I / R) (R = I / V)

Front 40

How do you figure a capitalization rate?

Back 40

It’s the net annual rent expressed as a percentage of the total property value

Front 41

What does CPR stand for?

Back 41

Changed property ratio. The ratio determined by dividing the average maximum assessed value (AMAV) by the average real market value (ARMV) for the same area and property class of unchanged property.