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9 Cards in this Set
- Front
- Back
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Cost Approach |
Based on the principle of substitution |
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Steps of Cost approach |
a. Estimate the land value b. Estimate the replacement cost of the improvements. c. Estimate the depreciation d. Deduct the depreciation from the replacement cost. e. Add the land value to the depreciated cost of improvements -- do not depreciate land. |
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Depreciation |
Generally applies to a wasting asset, such as a building. a. Physical deterioration (wear, tear, poor maintenance) -- may be curable or incurable b. Functional obsolescence - May be curable or incurable (outdated items, poor design) c. External obsolescence (economic, environmental, or locational) - Always incurable (outside the property) d. Most reliable approach for special-purpose buildings such as churches or schools. |
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Market/data approach (Sales comparison or direct sales) |
The adjustment process involves three basic steps: a. Adjust the price of the comparable for any difference between the comparable and the subject property (the property being appraised). With your dollar adjustments remember to always mirror your subject property. B) C.B.S. -- Comparable better subtract from the comparable the difference between the comparable and the subject property. c) S.B.A. --Subject better add to the comparable the difference between the comparable and the subject property. Considered the most reliable of the three approaches in appraising residential property. |
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Income capitalization approach |
Based on the present value of rights to future income. Most reliable approach for income-producing property. |
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Steps in the income approach |
a) Estimate the annual potential gross income b) Deduct the vacancy and rent loss to arrive at the effective gross income. c) Deduct the annual operating expenses to arrive at the annual net operating income. d) Estimate the capitalization rate. e) Apply the capitalization rate to the annual net income. |
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Formula for Capitalization rate |
net income / capitalization rate = value. |
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Gross rent multiplier (GRM) |
Formula for GRM: sales price / monthly rental income = GRM |
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Gross income multiplier (GIM) |
Sales price / annual rental income = GIM |
