Ch 3 Flashcards
Example to Supporting Effective Age of the Subject property
Use several comparable sales from the same neighborhood. Assumptions are that all sales and the subject property have had similar upkeep, with no major upgrading, remodeling, rehabilitation, or additions.
Sale Price of the Comparable Sale: $100,000.
Land Value: $ 20,000.
Cost New of the Improvements: $130,000.
Assume that the comparable sale is 24 years old.
Let’s further assume that two other comparable sales indicate average annual depreciation rates of 1.4% and 1.5%.
The subject property is 26 years old.
If the subject has a Total Economic Life of 70 years, what is its Effective Age?
Example to Supporting Effective Age of the Subject property
Use several comparable sales from the same neighborhood. Assumptions are that all sales and the subject property have had similar upkeep, with no major upgrading, remodeling, rehabilitation, or additions.
Sale Price of the Comparable Sale: $100,000.
Less: Land Value: $ 20,000.
Present Value of the Improvements: $ 80,000.
Cost New of the Improvements: $130,000.
(No land value included here)
Less: Present Value of the Improvements: $80,000.
Total accrued Depreciation of Improvements: $50,000.
Total Depreciation of Improvements / Divided by Cost New of Improvements:
$50,000 / $130,000 = .3846
This is the total percentage of loss from cost new: .3846 or 38.5%
Assume that the comparable sale is 24 years old. That means it has depreciated 38.5% over 24 years – or an average of 1.6% per year (.385 / 24 = 0.016).
Let’s further assume that two other comparable sales indicate average annual depreciation rates of 1.4% and 1.5%.
If we reconcile the three indications to be 1.5% depreciation a year; then we can use that to estimate the Effective Age of the subject property.
The subject property is 26 years old. 26 X 0.015 = .39 or 39% depreciated.
If the subject has a Total Economic Life of 70 years, then its Effective Age could be calculated as 70 X .39 = 27.3; rounded to 27 years.
How is Total Economic Life of the Subject Property calculated?
As with effective age, use several comparable sales from the same neighborhood.
Sale Price of the Comparable
Less: Land Value
Equals: Contributing Value of the Improvement
Gross Living Area of the Comparable is multiplied by the appropriate cost per square foot for the type of construction to obtain:
Replacement Cost New of the Improvement.
Replacement Cost New minus the Contributing Value of the Improvement
Equals: Total Accrued Depreciation from Cost New.
Total Accrued Depreciation divided by the Replacement Cost New equals:
Percent (%) of total Accrued Depreciation.
Percent of Total Accrued Depreciation (%) divided by the Chronological Age of the Comparable Sale equals:
Rate of Depreciation per year.
1.0(this is 100 percent depreciation) divided by the Rate of Depreciation per year equals:
Total Economic Life
The results of these calculations can support the appraiser’s conclusion for the subject property’s Total Economic Life.
Markets will generally fall into the following categories:
- Residential properties
- Commercial properties
- Industrial properties
- Agricultural properties
- Investment properties (which could include any of the above)
- Special purpose properties
“A prediction of future market conditions based on inferences drawn from general market information, published data, and historical trends in rents and absorption rates and occupancy for similar property types.”
defines
Inferred Analysis
“A prediction of future market conditions based on comparison of a quantified estimate of future demand with a quantified estimate of future supply; also known as x demand analysis.”
defines
Fundamental Analysis
22,740 Number of people employed in the community
12,633 Number of core industries employees
For each new core employee hired, how many additional jobs will be created?
22,740 divided by 12,633 will indicate a base core multiplier of 1.8. This economic base multiplier indicates that for each new core employee hired, there will be an additional .8 jobs created in the community.
12,633 = 100%
22,740 = x
x = 180%
Examples for off-site improvements?
Public or private street
View
Street length and curvature
Street lights, storm sewers, curbing, fire hydrants, sidewalks
Utilities
Flood hazard area
Environmental conditions
Different roof types are?
Gable
Hip
Pyramid
Mansard
Shed
Flat
There are three basic types of heat systems:
- Forced air system: fired by gas (natural, manufactured, or liquid petroleum-propane), fuel oil, or electric
- Water convection radiator system: boilers that generate hot water or steam
- Electric heat pump system: Acts as both a heat system and air conditioning system
Framing methods:
Most of the framing allowed by building codes is of the western framing technique. This type of framing is used to construct one story at a time and is commonly called platform framing.
The other types of framing are plank and beam framing and
balloon type framing.
The cost to install the air conditioning at the time of construction would have been $4,000. The cost to install the air conditioning now is $7,000. How much is the functional obsolescence? Is it curable if the value will increase by $8,000?
$7,000
Minus $4,000
= $3,000 functional obsolescence
The value needs to increase by more than $7,000 to be curable. In this case, it is curable.
