Module 12&13 Flashcards
depreciation
is the loss in value of improvements not land. when property ages or its hbu is no longer represented depreciation accrues until renovation or demolition occurs
mkt extraction
1) select similar improved properties
2) subtract land value
3) result will be value contribution of the improvements of comp sale
4) compare the value of contribution of the improvements will be calculated not as a date of appraisal, but as date of sale. This amount is the same as the depreciated cost of improvements as date of sale.
4 essential formulas
1) effective age & remainin economic life = total econ life
2) basic age/life ratio = eff age/econ life =% of depreciation
3) % of depreciation accrued multiplied by cost gives amount depreciated
4) cost - depreciation =depreciated cost known as contributory value of improvements
deferred maintenance
regular maintenance easily cured physical deterioration
incurable items
short lived like carpet ,roof,
long lived components
building components….steel frame, concrete foundation
when would appraiser ever need to know value of land or site
1) vacant land
2) hbu
3) cost approach - value land separate as if vacant and then adds depreciated value of the building& site improvements; only approach that requires separation of land
4) income capitalization approach
5) property taxation
6) insurance
7) condemnation
3 approaches to value
sales comparison
income capitalization
cost approach
economic principles that should be taken into account when valuing land
anticipation - worth of future benefits
change - population growth or decline or change in traffic patterns & employment
supply& demand
substitution
balance
externalities
transferable development rights
used to preserve agriculture land. preserve historic sites on buildings & open space or to protect scenic features
6 procedures in performing land value
GLADES
1) ground rent captializatio
2) land residual technique
3)allocation
4)subdivision developmet
5)extraction
6) sales comparison
most common - sales comp, extraction & allocation
most reliable sales data
closed sale - contract between buyer and seller; title transferred
contract for sale - meeting of the minds, but sale had not closed yet…pending on MLS
listing - offer to sell can be used to analyze competition; offer to sell often sets the upper limit of potential sales
offers to purchase - but not yet accepted; gives most current picture of what is taking place in the mkt. In balance mkt an offer to purchase sets the lower limit of potential sale prices
options - rearranged future purchase prices executable by the purchaser; provides the appraiser with info about future thoughts of the mkt
elements of comparison
aspects of comp sales that we compare to subject property & make adjustments for differences
elements of comparison
1) property rights conveyed
2) financing terms
3) condition of sale - sold low mkt sale due to job loss
4)expenditures made immediately after purchase ex. utility lines
5) mkt conditions - change in mkt that occurs over time
6) location & geography
7) physical& geological characteristics - size, shape, and frontage (river, lake, ocean) *corner lot influence *plottage value (process that creates plottage is assemblage) *excess land, surplus land, landscaping, streets, sidewalks, lighting, accessibility, etc.
8) economic characteristics - interest rates, credit, employment rates, general economic outlook, rural areas,
9) use/zoning
10) non-realty items, i.e. transferrable development rights
units of comparison
sq feet, front ft, cubic ft, room, bed, seat,apt, or another unit
gross adjustments
total amount of adjustments regardless of they are positive or negative; shall not exceed 25%
net adjustments
net amount after all plus and minuses have been applied; shall not exceed 15%
paired data analysis
extracting adjustments by comparing 2 sales that are similar in most respects with the exception of the one for which you are seeking the adjustment. The principle of contribution comes into play here; source of adjustment.
cost to cure
deriving adjustments for the cost to effect necessary repair or renovation. An upward adj can be made to comparable if it had no utilities & sub property did; source of adjustments
capitalization of ground rent
compares value of leased land, parcels, incomes, or rates; a source of adjustments
present value calculations
if a finite time frame is involved (like 2 years until the road is completed or 6 months until lease up) in which have known for future value & solve for present value using an appropriate; a source of adjustment
property rights
can be adjusted through a comparison of mkt rent & contract rent plus consideration of revisionary value. Very common comparison in commercial; a source adjustment
linear regression
statistical graphing of sales & a trend line forecast for the subject. a change in one variable; a source of adjustment
multiple regression analysis
statistical graphing of sales & a trend line forecast for the subject. based on more than one variable; a source of adjustment
interviews with mkt participants
when none of the previous sources of adjustment are available
personal judgment
least desirable
percentage adjustment
made to sale price of comp sale
extraction
sales price - depreciate cost of improvements = land value; most applicable when improvements are very new (no depreciation) or very old (almost total depreciation)
allocation procedure
land value is represented y certain % of gross value
effective date of an appraisal
is the date of inspection
site characteristics
utilities: electricity, gas, water, and sanitary sewer. Offsite improvements such as streets and alleys
sales comparison approach
necessary to produce a credible opinion of value for a SF residence
economic principles of sales comparable approach
hbu - properties compared based on use
supply & demand - buyers constitute the mkt demand
substitution
balance
externalities
sources of data
1) closed contract best indicator of mkt data
2) contracts - current sales tht hv not closed, hv not met conditions of closed sale
3) active listing - reflect current competition & price levels time & reasonable exposure time for similar property and subject
quantitative analysis
involves math
qualitative analysis
does not involve math
paired data analysis
2 properties compared but only one difference, difference can be indicative of value quantitative
statistical analyses
use statistical inference, linear analysis, & regressional analysis to est value & identity and measure adj to the sale price of comps; quantitative
graphic analysis
graphically displayed data visually thru curve fit analysis. Graph can also be used to support & exhibit value trends for comparison elements in qualitative analysis.quantitaive
cost analysis/cost-related adj
cost indicates such as depreciated costs. Cost to cure or cost to remodel as the basis for adjustments. Cost related adju are better suited in mkts with limited sales activity mkt; quantitative
capitalization of income differences
capitalization of difference in net operating income can be used to derive an adj when the income loss incurred by a comp reflects specific deficiency in the property such as inadequate parking facilities for a retail store; quantitative
trend analysis
identify & measure trends in the sales price of comp. Used when a large amount of mkt data; qualitative
relative comparision analysis
analyze comp sales to determine whether the property’s relevant characteristics are inferior or superior or equal to those of subject; qualitative
ranking analysis
1) sales ranked in ascending or descending order of desirability 2) each analyzed to determine the relative position of the subject
personal interviews
subjective and less reliable
comparative analysis
identify the process in which quantitative and qualitative techniques are applied to comp sales.
% adjustments
reflect change in mkt conditions & diff locations commonly used with commercial appraisals and residential appraisals using land
$ adjustments
relative to physical characteristics are commonly made in terms of $. % are frequently converted into a $ amount and vice versa.
