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33 Cards in this Set
- Front
- Back
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Cost Approach
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assumed that the value of property in indicated by the value of site, plus the cost to construct the improvements (NEW) -LESS Depreciation
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Depreciation
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the difference in the value between new and current value
V=Cost-depreciation |
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3 STEPS
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1) estimate the reproduction or replacement cost.
2) Est Depreciation 3) Est Value of land |
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cost approach is best
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appraisal for service type buildings where there are few comps & income is not appropriate. (Ex - Athletic Stadiums) or newer structures.
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Replacement Cost
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the cost to build a substitute
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Reproduction Cost
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Cost to create an exact replica. Replacement costs are "usually" less than reproduction costs.
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Superadequacies
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Excessive in quality or design
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Entrepreneurial profit
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the amount the owner/developer would expect to make when improving property.
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COST ESTIMATING TECHNIQUES -
Comparative Unit Method |
est on the basis of square footage. Unit cost by market analysis - the appraiser gathers data on sales comps of new homes.
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COST ESTIMATING TECHNIQUES-
Unit in place Method |
Requires the appraiser to measure the quantities of various building components - foundation, floors, walls, roof..etc
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COST ESTIMATING TECHNIQUES -
Quantity Survey Method |
most detailed & most reliable for est construction costs. Level of detail is greater than unit in place. Used ore often than contractors and builders. EXAMPLE: rather than a price per sq ft. for ext walls, it calculates the price for wood, nails, paint..etc.
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COST ESTIMATING TECHNIQUES -
Cost Index Trending - |
Method of est the reproduction costs of a building whose original cost is known, quick & convienient - but not very reliable.
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DEPRECIATION
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refers to a loss in value of an improvement (as compared to its cost)due to any reason whatsoever.
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ACCRUED DEPRECIATION
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Amount of dereciation that has occured between the time it was built and the effective date oif the appraisal
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ACTUAL AGE
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(chronoligical or historical)- is the actual amount of time the improvement has been in existance
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Effective Age
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is the apparent or functional age of the improvement, based on current condition, may be the same or greater or less than actual.
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Economic Age
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(useful life) the length of time an improvement will contribute value.
Note - the economic life of an improvement comes to an end when it no longer represents H&B use. |
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Physical Life
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the amunt of time an improvement will last with normal maintenance.
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Remaining Economic Life
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the amount of time left from the effective date of the appraisal until the end of the improvements economic life.
EXAMPLE: Remaining Economic Life (55) = Economic Life (60) - effective age (5) |
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3 TYPES OF DEPRECIATION
1) PHYSICAL DETERIATION |
Physical - depreciation that is caused by wear and tear (broken windows, leaky roofs, termite damage..etc)
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Pysical Depreciation can be curable or incurable
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if is costs less to correct than the value it adds, then it is curable. Otherwise it is incurable.
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Long Lived Items
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A COMPNENT THAT IS EXPECTED TO LAST AS LONG AN THE BUILDING.
Example - foundation |
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Short Lived Items
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Components that need replacing (Paint-Carpet)
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3 TYPES OF DEPRECIATION
2) Functunal Obsolescense |
Build in obsolescence - depreciation that is caused by design deffects.
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Superadequacy
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a form of an overimprovement, features cost is greater than the value it adds
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3 TYPES OF DEPRECIATION
3) External Obsolescense |
a loss in value from causes outside the property itself (usually incurable).
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Recap of 3 types of depreciation
they are |
1) Physical DETERIATION
2) Functional Obsolescence 3) External Obsolescence |
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THE COST APPROACH TENDS TO BE LESS RELIABLE BECAUSE
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IT IS DIFFICULT TO CALCULATE DEPRECIATION
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METHODS OF ESTIMATING DEPRECIATION
1) Economic Age Life Method |
based on improvement losses value at a steady rate. AKA as the straight line method.
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METHODS OF ESTIMATING DEPRECIATION
2) Sales Comparison Method |
data more likely to be available for functional or external causes - can be used to determine any tyoe of depreciation when adequate data is available.
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METHODS OF ESTIMATING DEPRECIATION
3) Capitilization Method |
similar to sales comp but for rental properties
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METHODS OF ESTIMATING DEPRECIATION
4) Cost to Cure |
the amount of depreciation would be the cost to repair.
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METHODS OF ESTIMATING DEPRECIATION
5) Observed Condition Method |
(AKA Breakdown method) - appraiser estimates the amount of each of the tuyopes of depreciation seperately
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