Describe the 3 basic valuation approaches used by appraisers Flashcards
What are the 3 basic valuation techniques?
1) Sales comparison approach
2) Cost approach
3) Income approach
The 3 basic valuation techniques serve as ___ against each other
checks
Because no 2 parcels of real estate are ___, each comparable property must be analyzed for ___ and ___ between it and the subject property
exactly alike
similarities
differences
The sales comparison approach is a good example of which appraisal principle?
Substitution
2 condos in the same neighborhood are very similar. One of them was already sold and the other is the subject of an appraisal. The comp sold for $145,000 and has a garage valued at $9,000. The subject property has no garage, but it has a fireplace valued at $5,000. What is the indicated value of the subject property?
$141,000
145,000 (comp sale price) - 9,000 (comp is better, subtract CBS). + 5,000 (comp is poorer, add CPA) = 141,000
Which approach is considered to be the most reliable approach in appraising single family homes?
Sales comparison approach
Most appraisals include a minimum of ___ comparable sales reflective of the subject property
3
Comparables should be sales that occurred ___, ___, and ___
less than 6 months
close by
as similar as possible to the subject property
What are the 5 steps of the cost approach?
1) Estimate value of land as if it were vacant and available to be put to its highest and best use
2) Estimate the current cost of constructing buildings and improvements
3) Estimate the amount of accrued depreciation resulting from the property’s physical deterioration, functional obsolescence, and external obsolescence
4) Deduct the accrued depreciation from the current construction cost
5) Add the estimated land value to the depreciated cost of the building and site improvements to arrive at the total property value
Current cost of construction is 185,000. The property has 30,000 in accrued depreciation. The land values at 55,000. Using the cost approach, what is the total property value?
210,000
185,000-30,000+55,000 = 210,000
___ cost is more frequently used in appraising older structures because it eliminates obsolete features and takes advantage of current construction materials and techniques.
Replacement
Reproduction or replacement cost (NEW): 500,000
Age: 5 years
Full economic life: 40 years
Land value: 50,000
Using the cost approach, what is the total property value?
$487,000
Yearly depreciation amount ($500,000 divided by 40 years) = $12,500
Full loss (5 years x 12,500 per year) = 62,500
Depreciated value of the structure (500,000 - 62,500) = 437,500
437,000+ 50,000 (land value) = 487,000
What are the 4 methods of computing the reproduction or replacement cost of a building?
1) Square foot method
2) Unit in place method
3) Quantity survey method
4) Index method
In the cost approach, this is the most common and easiest method of cost estimation
Square-foot method
Appraisal cost approach method that is most detailed and time-consuming
Quantity survey method
The most accurate method of appraising new construction
Cost approach quantity-survey method
Appraisal cost approach method that is only useful as a check of the estimate reached by other methods
Index method
The __ method fails to take into account individual property values
Index
Land does not ___
depreciate
Depreciation is considered ___ or ___ depending on the contribution of the expenditure to the value of the property
Curable or incurable
What are the 3 classes of depreciation?
1) Physical deterioration
2) Functional obsolescence
3) External obsolescence
Outmoded or unacceptable physical or design features that are no longer considered desirable by purchasers are considered ___.
Curable obsolescences
Undesirable physical or design features that cannot be easily remedied because the cost of the cure would be greater than the resulting increase in value would be __.
Incurable obsolescences
