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33 Cards in this Set

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Note - the economic life of an improvement comes to an end when it no longer represents H&B use.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