AAS Flashcards
What is an Ad Valorem tax?
A tax based on the principle that the amount of tax paid should depend on the value of the property owned.
When the quantity of one productive service is increased in equal increments, while the quantities of other productive services remain fixed, the resulting increment of product will decrease after a certain point.
The principle of variable proportions (law of decreasing returns):
Net income remaining after the cost of labor, management and capital have been paid.
Surplus productivity:
The amount of goods that producers are willing to sell under various conditions during a given period.
Supply:
Market value of a property tends to be set by the cost of acquiring an equally desirable and valuable property.
The principle of substitution:
Quantities of various goods that people are willing and able to buy during some period, given the choices available to them
Demand:
States that the property must be valued with a single use for the entire property.
The principle of consistent use:
The basis for applying the adjustments in the sales comparison approach.
The principle of contribution:
The value of property depends in part, on its relationship to its surroundings.
The principle of conformity:
Availability must be in harmony with demand. If one or the other is in excess, prices will increase or decrease.
The principle of competition:
The tendency of social and economic forces affecting supply and demand to alter overtime.
The principle of change:
Maximum value is obtained when the four agents of production attain a state of equilibrium.
The principle of balance:
The present worth of future benefits.
The principle of anticipation:
After reaching a certain point, the addition of successive increments of one agent of production will decrease future incomes or amenities.
The principle of increasing/decreasing returns:
The value of a lower price property is increased by its association with better properties of the same type.
The principle of progression/regression:
A concept an appraisal and in assessment law requiring that each property be appraised as though it were being put to its most profitable use, given probable legal, physical and financial constraints. The concept is most commonly discussed in connection with underutilized land.
The principle of highest and best use:
The loss in value from all causes, of property having a limited economic life.
Depreciation:
Loss in value due to wear and tear, services and the forces of nature.
Physical depreciation:
Repairs will cost less than the value it adds to the property.
Curable physical depreciation:
Repairs will cost more than the value it adds to the property.
Incurable physical depreciation:
Loss in value due to an inability of the structure to adequately perform the function for which it is used.
Functional depreciation:
Also known as external obsolescence.
It is a loss in value due to something outside the control of the property; and always incurable!
Economic or locational obsolescence:
How to calculate external or economic obsolescence:
By capitalization of rent loss.
Rent loss multiplied by the GRM equals The amount of depreciation due to loss of value.
Uses map/plan; small urban units. Four example, Lot 10 located in the King subdivision.
Lot and block land description system:
Uses: sections, townships and ranges.
Rectangular survey method land description system:
Bass lines run east and west; meridians run north and south.
One Township equals 36 sections.
Each section contains 640 acres and measures 1 mile x 1 mile or one square-mile.
Townships
Required rate of return on equity capital.
Equity yield rate:
Annualized yield rate on capital that is generated by an asset over a period of ownership.
Internal rate of return:
Return on investment. Can be calculated using sales for the band of investment method.
Discount rate:
Return of investment.
Calculated by taking the annual amount that can be captured from an investment divided by the original investment.
Recapture rate:
Is calculated by annualizing market rent at 100% occupancy.
Potential gross income:
Maintenance, supplies, insurance, utilities, employees salary/benefits and minor miscellaneous.
Allowable operating expenses:
Property tax, depreciation, income tax, capital improvements, franchise fees, debt service and owners personal expenses.
Property taxes are handled as part of the total capitalization rate (effective tax rate).
Non-allowable operating expenses:
Rent that will be collected if property is 100% occupied at market rent.
Potential gross rent:
Rent prevailing in the market for comparable properties and is used in calculating market value by the income approach.
Market rent:
The actual amount agreed to by the landlord and the tenant. (leased fee)
Contract rent:
The difference between contract and market rents; implies the tenant is paying more rent than us being paid for comparable properties.
Excess rent:
The tenant portion that is the difference between market rent and contract rent when the tenant is paying less than market rent.
Lease hold:
Sale price divided by gross annual income.
This is typically used with commercial properties.
Gross income multiplier; GIM:
Sales price divided by monthly rent.
This is typically used with residential properties and makes no allowance for expenses or vacancy. Often it is used as a benchmark to measure potential profitability.
Gross rent multiplier; GRM:
Develops, publishes, interprets and amends USPAP.
Appraisal standards Board (ASB)
Must hold all records for five years or two years after any judicial action.
USPAP Record-keeping:
Must have knowledge and experience necessary to complete an assignment or gain required knowledge and experience during an assignment if the client allows.
USPAP competency:
Composed of one dependent variable; (what is being estimated) and one or more independent variables (items used to predict or explain the dependent variable).
Mass appraisal models:
MV = IV + LV.
Basic mass appraisal model:
A model that adds and multiplies. these models have more freedom in specification and are more flexible however they cannot be calibrated directly and have no unique solutions. Used for cost models.
Hybrid model:
The entity that is statutorily responsible for the taxes.
Legal incidence:
The entity that pays the taxes.
Economic incidence:
Power is constitutionally divided between national and subnational divisions; such as, states and provinces. Promotes competition, accountability and innovation.
Federalist model of government:
Tax efficiency:
Resource allocation.
Tax elasticity:
Response to changing economic issues.
Tax acceptability:
Citizens believe the tax is reasonable.
Basic managerial functions:
Planning, organizing, directing and controlling.
Single-family newer/Homogenous must be between five and 10; single-family older/heterogeneous must be within 5 to 15; other residential must be between five and 20. Income property/large area must be between five and 15 income property/small area must be between five and 20.
Vacant land must be between five and 25.
IAAO standards for coefficient of dispersion:
Requires the identification of goals in the various ways of achieving them. ______ provides the basis for all other managerial functions.
Planning:
Requires deciding how to structure in staff the organization.
Also requires developing an organizational structure that shows the allocation of resources, authority relationships and structure of the organization; including staffing patterns.
Organizing:
Requires the manager to provide a leadership role to the subordinates in the workgroup. The manager must find ways to provide guidance, to involve the group in decision-making and to be a mentor to individual performance.
Directing:
Requires monitoring performance of departments, divisions, sections in individuals. Having well-designed system controls can assist in identifying problems in a timely manner and allow the manager to implement corrective actions quickly.
Controlling:
Chain of command; subordinates are seen as robots and are expected to follow orders without question.
Classical style of management:
Recognizes employees as individuals, that are responsible, willing to learn and with proper incentives motivated to be self-starters in creative.
Behavioral perspective style of management:
New were approach; premised on a set of interrelated parts that work together to achieve goals.
Organized into subsystems the perform certain tasks to ensure completion of the end product.
Systems school style of management:
Technical information and processes required to transform inputs into outputs and related specialized management techniques.
Technical subsystem:
Organizations formal structure as expressed in the organization chart. Concerned with both formal and informal patterns of authority in communication as well as how labor, capital, information and materials are used.
Structural subsystem:
Includes development of comprehensive strategic and operational plans, feedback structures and budget control processes.
Planning subsystem:
Contains four key principles; functional, scaler, line/staff and span of control.
Classical school of management:
Subjective; starting point includes a value judgments.
Normative statements or analysis:
Objective; purely factual, without judgments.
Positive statements for analysis:
Income model structure
I\R=V
Standard deviation
Find mean
Subtract and square differences
Sum and divide by n-1
Find sq rt
COV
Divide SD by mean
Multiply by 100
PRD FORMULA
Mean/weighted mean
Most common measure of appraisal uniformity
COD
A measure of vertical equity
PRD
Divide appraisal value by
Sales Price
Calculating COD
Find median Calculate absolute deviation Sum differences Divide by # of sales Divide by median
A PROPERTY HAS A NET OPERATING INCOME OF 10,000, INTEREST PAYMENTS OF 8000 AND PRINCIPAL PAYMENTS OF 1000. WHAT IS THE DEBT COVERAGE RATIO?
1.11
If the land to building ratio had been used to establish land value, what valuation method would this have been?
allocation
An interior inspection of a property shows it is suffering from extreme deferred maintenance. What would be the best way to measure this depreciation?
determine cost to cure
From tenants standpoint, when economic rent exceeds contract rent the difference is known as
leasehold income
If an income property has an annual effective gross income of 64000 with total expenses of 30000 and variable expenses of 17000, what is the operating expense ratio?
.47 (total is 30, dont add 17) EGI/TOTAL
apartment complex, PGI is 500000, vacancy 6%, operating expenses 205000, what is operating expense ratio
44% (205/500*.94)
Building cap rate- .11, land cap rate- .09, land value as percent of total 35%
.103
PGI 1545000, vacancy 5%, operating expenses 543068, EGI multiplier 7. What is overall cap rate Ro?
.09 (NOI/EGI, EGI=1467750, NOI=924682) NIR/EGIM
A property has a land value of 1000000, a net operating income of 350000, a land cap rate of 10%, and a bldg cap rate of 12.5%. What is the value of the subject?
I R V
B-250k .125 2000000
L-100k .10 1000000
T- 350k
3000000
Staff costs account for approximately what percentage of the budget for most jurisdictions
80-85
