CHAP 04 REVIEW Q&A

Question 1

What are some of the different ways an assessor can obtain an up-to-date property inventory when time is very short?

Answer 1

Review by exception-check data to see if it is reasonable and consistent; only properties that fail these checks are field reviewed.

Inventory Mailer Program - mail property information requests to property owners; field review property where information supplied differs from assessment agency inventory

Phone checks and field check - check existing information by telephone and conduct field checks where there are substantial inventory changes.

Question 2

Computerized cost procedures can be either formula driven or cost manual driven.

1. How does a manual driven cost model operate?
2. What are some of the advantages of using a formula driven cost model over a manual driven cost model?

Answer 2

1. Manual driven cost use tables and other pricing schedules that are loaded into the computer exactly as they appear in the manual. The logic the manual applies for calculating values - looking up values in the table, rounding, interpolating and totaling component values - is completely programmed into the computer.
2. Formula driven cost models replace table by formulas that reflect the underlying cost approach to value. They are preferred because they are created locally using local properties and updated locally. There is no need to rely on an outside service to provide updates and local factors. The data inventory can be recorded in a format that suits the assessment jurisdiction rather than the manual company. Any irregularities in the manual driven approach are eliminated with a formula driven approach. With trained staff, formula driven cost models are less expensive.

Question 3

In evaluating bids for contracting out assessment valuation work, the assessor will clearly want to consider the technical expertise of the contractor.

What other factors should the assessor consider?

Answer 3

Aside from the technical expertise of the contractor, the assessor should consider:

• past performance; completed on time and of acceptable quality.
• staff; depth, quality, experience, training.
• financial stability.
• references.
• site visits where work has been previously completed.

Question 4

Define “highest and best use” and briefly explain how an appraisal based on highest and best use differs from an appraisal based on “value in use”.

List one example of each type of appraisal.

Answer 4

• Highest and best use represents market value of a property at its most profitable legal use which may or may not be its current use. Highest and best use is a function of potential utility.

An example of valuing according to highest and best use is market value assessment.

• Use value is the value of property in a specific use.

An example of valuing according to use is the assessment of farmland even though a more profitable use is available.

Question 5

Describe the principles of anticipation and substitution as applied in appraisal.

Use examples of each in your answer.

Answer 5

Anticipation : investors demand property because they anticipate future stream of benefits or future reversion on sale of property.

Example : all income producing property such as apartment buildings, offices, etc ; bare land.

Substitution: this principle is used in all three all approaches to value.

A buyer will pay no more for a property than the cost of obtaining a functional equivalent house.

Example : pay no more for a house than cost of buying a lot and building a functionally equivalent house.

An investor will substitute other types of investment for real estate it the return is greater, for similar risk.