Module 1 Flashcards
Desirability:
want the product for it to have value
Utility:
ability to satisfy a human: want, need, or desire
Scarcity:
present supply relative to the demand for it
Transferability:
ability to purchase the property
In order to have value, the property must have ____
DUST:
Desirability,
Utility,
Scarcity,
Transferability:
Fee Simple Title:
rights of ownership enjoyed by the owner of real estate.
There are six rights in the Bundle of Rights:
S – Right to Sell L – Right to Lease or Rent U – Right to Use G – Right to Give Away E – Right to Enter or Leave R – Right to Refuse to do any of these
Real Estate:
the physical land and any structure attached to it
Real Property:
(bundle of rights) rights of ownership enjoyed by the owner of real estate.
Four (4) rights which government has retained for itself:
T.E.P.E.
- Power of Taxation
- Power of Eminent Domain
- Police Power – power to regulate
- Escheat
Supply:
the amount of a product available for sale
Demand
the amount of a product consumers are willing & able to buy at a given time for a specified price.
Supply is dependent on what 5 things:
- Number of sellers in the market,
- Expectations of the future economy,
- The cost of production,
- The price of other goods available
- ^ principle of competition
5 Demand factors:
- Price asked for the commodity
- Expectations
- Price of related commodities
- Income
- Preferences (tastes)
Four external factors affect supply and demand, and therefore value (PEGS):
- Physical
- Economic
- Governmental
- Social
Anticipation:
worth of all future benefits expected by market participants.
The basis of the income approach to value.
Anticipation
Substitution
an equally desirable substitute.
This principle applies to all three approaches to value.
Substitution
“the reasonably probable and legal use of
vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.”
highest and best use
four tests of highest and best use are:
- Legally permissible
- Physically possible
- Financially feasible
- Maximally productive
Cost approach is used when:
- estimate the cost of constructing improvements to the land.
- you do not have sufficient sales to compare
- the structure has just been built
- you are doing mass appraisal. It can be used on all property types.
Cost approach formula:
L + (RCN - dep) = Value
The cost to reproduce all components of the building with the same materials and same labor as found in the current structure.
Reproduction Cost:
Determines the cost to construct a building of similar utility using modern materials and methodologies.
Replacement Cost:
Three Methods of estimating cost new (RCN):
- Quantity Survey Method (Trend)
- Unit-in-Place Method
- Comparative Method
RCN stands for
Replacement Cost New
Depreciation is the loss in value from RCN due to:
- Physical wear and tear
- Effects of nature
- Changing tastes and preferences
- Changing technology
- Forces outside the property reducing its value
Three types of Depreciation:
- Physical Deterioration
- Functional Obsolescence
- External/Economic Obsolescence
Sales Comparison Approach:
(a.k.a. market approach)
Sc +/- adj = Value
similar sold properties compared, adjusted for differences = market value is estimated.
Sales Comparison Approach (a.k.a. market
approach) formula:
Sc +/- adj = Value
Verification of sales determines:
arms-length sales transaction
The most common types of ownership are:
- Fee Simple
- Partial Estate
- Life Estate
Fee simple:
the highest degree of ownership
Partial estate:
leased property
Life estate:
right to use, occupy, and control a property for the length of the lessee’s life
Value in exchange:
amount of money or goods you can receive if you sell the property.
Value in use:
the value property has in a specific use.
Personal Property:
All Property that is not real
Tangible:
Physically exists; car, desk, tools, etc
Intangible Property:
No physical existence; stocks, bonds, bank accounts etc.
Three approaches to value:
- sales comparison
- income
- cost
Cost approach: four situations when to use
- structure has just been built
- estimate the cost of constructing improvements to the land
- not sufficient sales to compare,
- doing mass appraisal.
This approach is based on the principle of substitution.
- Cost approach
- Sales comparison approach
- Income approach
Used to value the income stream of a property.
Income approach
This approach to value uses the principles of substitution and anticipation.
Income approach
Tax Day:
December 31st
Ad Valorem:
At or according to value
TCV:
True Cash Value
MV:
Market Value
AV:
Assessed Value
SEV:
State Equalized Value
CV:
Capped Value
TV:
Taxable Value
Mills:
1/1000
Property Taxes:
TV x Mills
ECF:
Economic Condition Factor
IRM:
Inflation Rate Multiplier
CPI:
Consumer Price Index
CV formula:
CV = (last yr TV - losses) x (IRM) + AV Additions
An appraisal is:
An expert estimate of something to attain its value.
