Chapter 12: Value

Question 1

What are the 4 prerequisites to value? (DUST)

Answer 1

demand, utility, scarcity, transferability

Question 2

What are the 4 requirements to create value

Answer 2

payment in cash, open market exposure, parties are motivated, parties are knowledgable

Question 3

What are the 8 economic principles of value?

Answer 3

principle of supply and demand, highest and best use, substitution, conformity, change, progression and regression, competition, increasing/decreasing returns, contribution, anticipation

Question 4

What are 6 factors influencing value?

Answer 4

location, size and shape, depth tables, soil characteristics, key lots, assemblage,

Question 5

What is assemblage?

Answer 5

combining several individually owned adjoining parcels into one tract

Question 6

What is plottage?

Answer 6

two or more tracts assembled to create one large parcel resulting in greater utility and increase in value

Question 7

What are the 4 major forces that work to create the overall market where a property is located? (PEGS)

Answer 7

physical, economic, governmental, social

Question 8

What is a GLA or gross living area?

Answer 8

the measurement of exterior structures

Question 9

What are the 3 approaches to analyzing data?

Answer 9

Sales comparison/market data, cost/replacement, income/capitalization approach

Question 10

What does the sales comparison/market data approach consist of?

Answer 10

estimating the value by comparing the property being appraised with similar properties

Question 11

What does CIA stand for?

Answer 11

Comparable inferior add. if the comparable property is inferior the sales price of comparable should be adjusted upward

Question 12

What does CBS stand for?

Answer 12

Comparable better subtract. if the comparable property is superior, the sales price of comparable should be adjusted downward.

Question 13

What is an adjusted sales price?

Answer 13

after all adjustments between comparable property and subject, the property has been made, the result is the indicated value

Question 14

What does the cost/summation approach consist of?

Answer 14

similar to the comparison approach (principle of substitution) most applicable for special purpose properties, new properties & when comparable and income data are lacking

Question 15

What is reproduction cost?

Answer 15

the cost at today’s price of constructing an exact replica

Question 16

What is the definition of replacement cost?

Answer 16

at modern prices with modern materials & replacing the building w/one that serves the same functional utility &same amenities

Question 17

What is the definition of curable in the context of depreciation?

Answer 17

makes economic sense to fix.

if the cure would cost less than the added value of the repair its curable

Question 18

What is the definition of incurable in the context of depreciation?

Answer 18

doesn’t make economic sense to fix.

the cost to cure would exceed the value

Question 19

What is accrued deprecation?

Answer 19

a lump sum of the dollar amount the property has depreciated from the time it was build until date of appraisal

Question 20

What is the definition of physical life in the context of a structure?

Answer 20

how long a structure will remain physically sound with maintenance

Question 21

What is the definition of economic life in the context of a structure?

Answer 21

how long the property will remain economically productive

Question 22

What is the definition of effective age?

Answer 22

how old the property appears

Question 23

How do you calculate the percentage of depreciation?

Answer 23

effective age / total economic life

Question 24

How do you calculate total economic life?

Answer 24

effective age + remaining economic life

Question 25

What is remaining economic life?

Answer 25

the number of years ar the time of the appraisal that the property would remain economically productive

Question 26

How do you calculate lum sum of depreciation?

Answer 26

replacement cost new x percent of depreciation

Question 27

How do you get the coat approach value?

Answer 27

land value + depreciated value of the improvements

Question 28

What does the income approach consist of?

Answer 28

the property is based on the future benefit or anticipated amount of income

Question 29

How do you calculate the net operating income? (NOI)

Answer 29

effective gross income - total operating expense

Question 30

How do you calculate effective gross income?

Answer 30

effective/actual gross income is the potential income - vacancy factor

Question 31

What is capitalization rate?

Answer 31

the return an appraiser believes an investor would demand if the property was bought today