Part 2 Vocab Flashcards
One of the 6 procedures for analyzing land or site value. The appraiser analyzes improved property sales and proportionally separates prices paid between the improved land and total property, usually on a ratio basis.
It can be based on vacant improved land sales that are compared to improved property sales or the appraiser can use an extractive process by isolating the depreciated cost of improvements from the improved land.
allocation
Land value = sale price x typical ratio of land value to improvement value
Note: this is rarely used as a primary improved land valuation technique but it has secondary applications in the analysis of subdivision lot sales when there is a uniform ratio of land value to total property value. It can be used to establish land value when the number of vacant land sales is inadequate. It might also be useful in tax assessment studies.
One of the 3 approaches to valuation of improved land and building properties. Recognizes that participants in the marketplace relate value to cost. A buyer will not pay more for a property than the cost to acquire a similar site and construct improvements of equivalent desirability and utility without undue delay.
This is also true of building components such as decks, porches, adding plumbing fixtures, and fireplaces in residential properties or expanded open space and additional elevators in commercial properties.
cost approach
8 steps in this appraoch
One of the 6 procedures for analyzing land or site value. the appraiser forms an opinion of the improved land value by subtracting the contributory value (i.e. depreciated cost) of the improvements from the sale price.
extraction
Extracted Land Value = Sale Price - Contributory value of Improvements
Ample sales should be used and it’s most reliable when improvements can be reliably valued such as when the improvements are either new or very old.
One of the 6 procedures for analyzing land or site value. The improved land rent is a known amount, as in an improved land lease, and the income can be capitalized into an improved land value. Another application is when the rent is largely attributable to the improved land due to an interim use. The appraiser divides the land rent income estimated for the right to use and occupy the improved land by a land capitalization rate to form an opinion of the improved land value.
ground rent capitalization approach
Ex: surface parking lot downtown in an urban area
Land Value = Land rent / capitalization rate
An income approach to land value.
One of the 6 procedures for analyzing land or site value. It requires the appraiser to separate the rent between the improved land and the building improvements. Then the appraiser capitalizes the net income attributed to the improved land into a value opinion.
2) the appraiser converts the net income to the improved land only through the capitalization process to develop an opinion of value for the land.
land residual technique
IRV formula: Income/Rate = Value
Note: based on the economic principle of surplus productivity. As the other 3 agents of production have been paid, land as the residual receives income, which is capitalized into land value.
Primarily used on income properties.
One of the 6 procedures for analyzing land or site value. The appraiser searches for sales of similar vacant parcels. Each selected sale is analyzed and compared to the subject parcel and then adjusted for salient differences.
sales comparison approach (for land)
Note: the most common and preferred method of valuing land, assuming sufficient data available
One of the 6 procedures for analyzing land or site value. Can be used for larger tracts of unimproved land that have the potential for development into subdivisions. The appraiser analyzes the unimproved land (undeveloped) as if were subdivided, improved (developed), and sold. To do this, the appraiser subtracts estimated development costs from the estimated proceeds of the improved land sale which derives the net income to be discounted over the estimated sell-out period of the subdivided lots.
subdivision analysis (aka cost development method)
Note: uses yield capitalization, aka discounted cash flow analysis (DCF).
One of the 3 approaches to valuation of improved land and building properties. Measures the present value of the future benefits derived from property ownership. After income and expenses are estimated, the appropriate income stream(s) may be:
a) capitalized into a value opinion by applying an appropriate rate or factor (direct capitalization). This typically involves income over a one-year period.
b) converted into a present value opinion through discounting (yield capitalization of discounted cash flow analysis). This typically involves an income period of more than one year.
income capitalization approach
unimproved land that may have development potential
raw land
land prepared for development by grading, draining, installing streets, and utilities, etc.
improved land
One of the 3 approaches to valuation of improved land and building properties. The appraiser derives a value indication by comparing the subject property to similar properties that have sold recently by applying appropriate elements of comparison in the analysis. Adjustments are made to the comp sales for differences between the subject and the comp sales based on market evidence. The adjusted sale prices of comps are reconciled into an indication of value for the subject.
sales comparison approach
the final analytical step in the valuation process where you _____ the value indications into a single dollar figure or range into which the value will most likely fall. It takes place THROUGHOUT the valuation process. It is a disciplined process using reason and judgment based on the quality and quantity of data.
value reconciliation
What are the elements of comparison most frequently used in the sales comparison approach?
- property rights conveyed
- financing terms (compared to cash equivalency)
- conditions of sale
- expenditures made immediately after purchase
- market conditions (aka “time adjustment”)
- location
- physical characteristics (including green features)
- economic characteristics
- Use (based on comp zoning, highest and best use and utility)
- Non-realty components (ex: personalty, leased solar panels, business value, franchises, and trademarks)
What are the 3 traditional approaches to value for improved properties?
1) sales comparison
2) cost approach
3) income approach
Identify the 6 procedures for analyzing land or site value
- Ground rent capitalization
- Land residual technique
- Allocation
- (Subdivision) Development
- Extraction
- Sales Comparison
