Case Study Flashcards
land units of comparison
front ft sq ft acre site buildable units
land adjustments to consider
financing (1st) time location topography shape of lot access corner influence economic influence
In this method the appraiser establishes the value of standard or base lot in each stratum through traditional sales comparison analysis, with the base lot serving as the subject parcel.
base lot method
Sale price - improvement value = land value
Improvement must be fairly new.
Depreciation must be limited.
Must know the RCN of the improvement.
abstraction
Uses land-to-building ratio.
Assumption that land values are known.
allocation
A feasible method when land is rented or leased independently of improvements.
Must establish economic rents and an appropriate capitalization rate.
Remember the land does not recapture when developing the cap rate.
V = I/R
V = value
I = income
R = Capitalization rate
Capitalization of ground rents
- Estimate the projected sale price of the land.
2. Estimate the site development costs, overhead costs and profit.
3. Subtract site development costs and overhead costs from projected sale price to get the net income before holding costs and profit.
4. Subtract holding costs and profit from the net income before holding costs and profit.
5. Residual is estimated land value.
6. Large number of estimates and very little hard data.
7. Used most often with transitional land.
Cost of development
The principle of ____________ states that a rational, informed purchaser will pay no more for a property than the cost of acquiring an acceptable substitute with like utility, assuming that no costly delay will be encountered in making the substitution.
substitution
Value (V) = Land Value (LV) + Improvement Value (IV) less depreciation + other building value (OBV).
cost approach
labor, materials, supervision are ____ costs
direct costs
direct costs
labor, materials, supervision
- Insurance
2. Architect fees
3. Building permit fees
4. Interest
5. Taxes incurred during construction
indirect costs
indirect costs
- Insurance
2. Architect fees
3. Building permit fees
4. Interest
5. Taxes incurred during construction
This is the cost of constructing a building identical to the subject in floor plan, style, and all aspects, using the same materials. This method includes the added cost of obsolete design, building techniques and materials.
reproduction cost
This is the construction of a building having the same utility as the subject, as well as the same general amenities, although the building may differ in architectural design, materials of construction and floor plan. This method should be based on typical costs and it is the method most often used by appraisers.
Replacement cost -
cost index, depreciation schedules, market adjustment factors, and time and location adjustment are
cost modifiers
This method is the complete itemization of detailed direct and indirect costs encountered in the construction of a building.
The Quantity Survey Method -
- Tends to produce reproduction costs.
2. Used mostly by building estimators and contractors.
3. Indirect costs estimated separately.
4. Seldom used by appraisers.
The Quantity Survey Method -
This method is a modification of the quantity survey method in which the direct and indirect costs of the building elements are combined to form a complete unit cost for each of the building components. These units, when mutliplied by the building areas involved, result in a total building cost. This method is used mostly by contractors.
unit in place method
- Horizontal costs (floors, roofing, foundations, etc.) are calculated on a square foot basis.
2. Vertical costs (exterior walls, interior partitions, etc.) are calculated on a per linear foot basis.
3. Lump sum items (water heaters, fireplaces, etc.) are handled separately.
4. Includes all direct and most indirect costs.
5. Used in mass appraisal to develop benchmark costs, adjust for nonstandard features and to appraise unique properties.
unit in place method
In this method all costs are expressed on a per square foot basis. The per square foot costs can be obtained from an outside source (i.e. Marshall and Swift) or developed in-house.
comparative unit method
- One base rate is developed for each building class.
2. Costs are arrayed in schedules and indexed by building type, size, etc.
3. Most common method used in mass appraisal.
4. Tends to produce replacement costs. - Adjustments are made for differences from base specifications.
comparative unit method
This method is the least accurate of all the costing methods. It requires knowledge of the date of construction and the original cost. Involves an indexing of historical costs to current costs. A trending factor is multiplied by the original cost to find an estimate of today’s value.
the trending method
- Tends to produce reproduction costs.
2. Used in mass appraisal to appraise unique properties for which the cost of construction is known and to help validate cost estimates produced by other methods.
the trending method
The loss in value due to all causes except depletion, as of the date of the appraisal.
accrued depreciation
a. Physical deterioration - The loss in value due to wear and tear in service and the forces of nature.
b. Functional obsolescence - The impairment of functional capacity or efficiency and is a loss in value brought about by such factors as overcapacity, inadequacy, and changes in style, taste, technology and demands.
c. Economic obsolescence - The loss in value brought about by changing economic forces such as changes in highest and best use, legislation, etc.
forms of depreciation
The loss in value due to wear and tear in service and the forces of nature.
Physical deterioration
The impairment of functional capacity or efficiency and is a loss in value brought about by such factors as overcapacity, inadequacy, and changes in style, taste, technology and demands.
Functional obsolescence -
The loss in value brought about by changing economic forces such as changes in highest and best use, legislation, etc.
Economic obsolescence -
a. Curable - Also called deferred maintenance. An item may be considered curable when the cost of repair or replacement is at least offset by the value added to the property.
1. Cost to cure.
b. Incurable - Is deterioration that is not generally economical to repair or replace.
1. Short-lived - floor covering, ceiling, plumbing fixtures, roof cover, windows
Example: Roof - $5,000 x .50 = $2,500
- Long-lived - foundation, floor structure, electrical wiring, frame
Example: Structural costs - $131,000 x .50 = $65,500
Must remember to subtract out short-lived items before
finding depreciation for long-lived items.
physical deterioration
Also called deferred maintenance. An item may be considered curable when the cost of repair or replacement is at least offset by the value added to the property.
curable physical deterioration-use cost to cure
Is deterioration that is not generally economical to repair or replace.
incurable physical deterioration
floor covering, ceiling, plumbing fixtures, roof cover, windows
short lived incurable physical deterioration
foundation, floor structure, electrical wiring, frame
long lived incurable physical deterioration
a. Curable - Obsolescence that is economically prudent to cure. There are three types of curable functional obsolescence. They are:
1. Deficiency: Exists when an item is required by the market but does not exist in the subject property.
Example: lack of air conditioning
Measured by the cost to cure less RCN.
2. Modernization: Occurs when an item already exists in the subject property, but is not up to modern standards as required by the market place.
Example: old fashioned bathroom or kitchen fixtures.
Measured by the cost to cure, less depreciated value of the existing item.
3. Superadequacy: Occurs when items in the subject property are more than adequate to perform the function needed.
Example: A structure with a 10 ton air conditioning unit when a 5 ton unit would be adequate.
Measured by the current RCN less any physical depreciation already charged plus the cost to install a normally adequate unit.
b. Incurable - Conditions that are physically or economically impractical to correct.
Examples: poor room arrangement, high ceilings
Measured by rent loss resulting from these problems.
Example: lack of adequate closest space results in a loss of $7.00 per month in rent. The incurable functional obsolescence attributed to this problem would be $7.00 x 10 apartments x 12 months x 7 GIM = $5,880
functional obsolescense
Obsolescence that is economically prudent to cure. There are three types of curable functional obsolescence.
1) deficiency
2) modernization
3) superadequacy
curable
Exists when an item is required by the market but does not exist in the subject property.
Example: lack of air conditioning
Measured by the cost to cure less RCN.
curable-deficiency
