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29 Cards in this Set
- Front
- Back
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bottom-line adjustments
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present worth of excess rent (add) or present value of
below market rent (subtract). The value of intangibles or personal property may also be added. A cost approach generally results in a fee simple value without adjustments. If the appraisal is to estimate another interest such as a leased fee or leasehold estate, then an adjustment is necessary. |
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Depreciation - Physical
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Physical
* curable * incurable --- short-lived --- long-lived |
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Depreciation - Functional
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Universal format
1. Cost new of existing 2. - depreciation charged 3A. + cost to cure, or 3B. + value of loss 4. - cost if installed new,or + value added by item, etc. |
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Depreciation - External
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Curable? Incurable
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Depreciation - Economic Age-life
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Cost x Effective age/Total economic life
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Depreciation - Modified Economic Agelife
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Curables & Incurables
[(Cost - curables) x Effective age/Total economic life] + curables |
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Depreciation - Extraction From Sales
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1 S.P. - land value
2 Cost - building value 3 Depreciation/Cost |
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Land Value Estimate
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1. Sales comparison
2. Allocation - percentage to apply to a total value. 3. Extraction - Sale price minus improvement value, as of the date of sale. Results in a dollar value. 4. Land residual - IRV BLT 5. Ground rent capitalization - an income approach to valuing land. Formula: Income to land ÷ Capitalization rate to land 6. Subdivision analysis - PV of (Retail values of lots/tracts - expenses - costs - profit) over time |
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Developer's profit
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Management or the money necessary to make the “investment hands off”.
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What is the difference between subdivision analysis for vacant land, improved, and partially improved land?
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The inclusion of costs as a line item for land value.
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Allocation
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The percentage (%) of total value to land
value Is common in residential lots Is useful as a rule of thumb Example: A house sold for $200,000 in a new neighborhood & the lot was sold for $40,000. Therefore, the land value is 20% of a total house sale price. |
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Extraction / Abstraction
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It is the sale price
less contributory building value to result in a dollar ($) value for the land. |
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Ground Rent Capitalization
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Is an income approach to valuing land.
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Land Residual
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Subdivision
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To develop land value:
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Reproduction vs. replacement cost
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o Reproduction - duplicate
o Replacement - substitution, replicate |
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When is original cost relevant to estimate cost?
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Never: use cost as of the appraisal date.
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When is original cost relevant to test depreciation?
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Never: use cost as of the appraisal date.
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When is original cost relevant to measure depreciation?
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Never: use cost as of the appraisal date.
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Types of cost
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direct, indirect & profit
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Methods to estimate cost
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The methods to estimate cost from most to least accurate.
o Quantity survey – A detailed breakdown of cost o Unit-in-place (segregated cost) – Costing systems, such as framing, plumbing, etc. o Comparative unit (calculator method) – Done by square foot, lineal foot, etc. |
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Profit is only attributable to ..
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... the improvements.
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Older properties with more depreciation ...
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... tend to have higher Ro, higher OER and lower GIM's,
This is until the buildings contribute little value then because of low income but high (possibly) land value. Then the Ro becomes small, OER high, and GIM high. |
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Four tests of highest and best use
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1. Physically possible
2. Legally permissible 3. Financially feasible 4. Maximally productive |
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Highest & Best Use
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use that produces the highest dollar value to either the site as vacant (highest and best use as vacant) or to the property as improved (highest and best use as improved).
The highest and best use is not the use that would potentially give the highest yield. |
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Speculative HBU
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don’t know the ultimate use a property will be put to
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HBU for speculation
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the use is defined but the timing (when) is not.
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To demolish or not to demolish test
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If the value of the land as vacant is greater than the value as improved minus demolition costs, then demolish. If not, do not demolish.
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To renovate or not to renovate test
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If the value of the property is greater after renovation than the value “as is” plus renovation costs, then renovate. The costs to renovate must include a sufficient profit. If not, then do not renovate.
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