Xtra - FLASH AID Flashcards
Value Principles:
Value Principles: Problem Identification, Property Content, Legal Considerations, Highest/Best Use,
Economic Analysis “key consideration for highest best use”
Demand:
Demand: measures quantity of property market would like to purchase at given price
Property Content:
Property Content: physical, legal, financial, locational
Problem Identification:
Problem Identification: purpose, intended use, value
Competition:
Competition: 2 or more buyers to purchase/lease
Legal Considerations:
Legal Considerations: property rights, land use regulations, legislation
Substitution:
Substitution: when many similar goods are avail, low price= greatest demand
Elements of Value:
Elements of Value: certain point in time, price which would be expected, willing seller/buyer, normal consideration
Factors of Value:
Factors of Value: Supply Utility- product to satisfy need/want/desire Scarcity- undersupply of an item relative to demand for it
Demand Desire- purchasers wish to satisfy need/want Effective purchasing power- individual/group to participate in market, acquire good/services
Approaches to Value:
Approaches to Value: direct comparison, cost approach, income approach
Assessment Ratio:
Assessment Ratio: ratio assessed value to market value
Forces:
Forces: Physical, Economic, Government
Social Change:
Social Change: forces + environment influence real property value
Cost Index:
Cost Index: Current cost index / cost index (date of) = (x) construct. Cost
Real Property:
Real Property: immobility, durability of improved land, indivisibility of services, divisibility of ownership
Public Limit on Bundle of Rights:
Public Limit on Bundle of Rights: Zoning
Fixture:
Fixture: part of the real estate
Chattel:
Chattel: personal property, not affixed
Supply:
Supply: quantity of property supplied at given price (fixed location/X > / < rapid)
Market Value:
Market Value: expected or forecasted sale price $ property should sell on open market (via direct comparison=well informed buyers
Trade Fixtures=
Trade Fixtures= Personal property placed in, or affixed to, the premises leased by a tenant that is used in connection with the tenant’s business operations at the leased premises. Typically, trade fixtures remain the tenant’s property even if they are affixed to the leased premises.
ie. ovens
Real Property:
Real Property: Use/Market Value (leases/easements) * durability of improved land
Real Estate:
Real Estate: physical entity that is tangible/immobile
Use Value=
Use Value= Limited market properties ** intended use of appraisal determines type of value to be developed
FORMULA - Overall Cap Rate=
Overall Cap Rate= NOI / Selling Price
CUSPAP:
Canadian Uniform Standards of Professional Appraisal Practice
Surplus Productivity=
Surplus Productivity= labour, capital, land
FORMULA - NOI=
NOI= Selling Price x OCR
Investment Value:
Investment Value: value to individual not value in marketplace
Conformity=
Conformity= characteristics of property conform to demand of its market
FORMULA - Selling Price =
Selling Price = NOI / OCR
“Going Concern Value”:
“Going Concern Value”: value of a proven property operation
Externalities=
Externalities= affected by changes taking place beyond borders
FORMULA - Rate of Return=
Rate of Return= income / sale price
Public Interest Value:
Public Interest Value: social, political and public policy goals- based on non economic highest/best use
FORMULA - Market Value= **directcap
Market Value= NOI / Cap Rate **directcap
Actual Cash Value=
Actual Cash Value= Insurance Concept
Macro Economics:
Macro Economics: inflation, unemployment, interest rates, govern. policies (national/intern)
Micro Economics:
Micro Economics: individ/small firm
FORMULA ( MV= EGI X GIM **gim)
MV= EGI X GIM **gim
Replacement Cost:
Replacement Cost: Normal Depreciation
Easement=
Easement= privilege acquired by owner to benefit his land over another
FORMULA - Gross Inc. Multi (GIM) =
Gross Inc. Multi (GIM) = Selling Price / Eff. Gross Inc (EGI)
Anticipation price:
Anticipation price: we pay for goods/services is present worth of anticipated future benefits
Restrictive Covalent =
Restrictive Cov= restriction on use of one persons land
Balance:
Balance: combination of land and improvements is optimal, no additional marginal benefit
Contribution=
Contribution= how items contribute to overall value
Ownership=
Ownership=“legal rights of ownership”
Bundle of Rights=
Bundle of Rights= rights of ownership attributable to property (mortgage/lease/sell etc)
Leasehold Estate=
Leasehold Estate= life tenant has exclusive possession for limited time
Life Estates=
Life Estates= life tenant lives until title reverts to designated party
Fee Timesharing=
Fee Timesharing= interval ownership
Permitted Use=
Permitted Use= relevant by laws informs of use and development
Legal Non Conforming=
Legal Non Conforming= use of land/structure legally est. according to applicable zoning at the time, but doesn’t meet current standards
Trends:
Trends: vacancy rates, capitalization rates, changes in supply/home prices
Depreciation:
Depreciation: physical, functional, external obsolescence
Foundation:
Foundation: Footings, Piers, Piles
Plottage:
Plottage: increment of value resulting in 2/more sites assembled to produce 1 of greater utility
Social Influence:
Social Influence: # of people unemployed
Market Study
Market Study: ”market analysis” (inferred/fundamental)
Marketability Study:
Marketability Study: market for specific property (utility, scarcity, desire, effective purchase power)
Short Term Capture:
Short Term Capture: Absorption
Long Term Capture:
Long Term Capture: Share of Market
Entrepreneurial Profit=
Entrepreneurial Profit= difference between total cost of development and market value
Quality/Condition Survey:
Quality/Condition Survey: short lived, long lived, immediate repair
Not Economically Feasible:
Not Economically Feasible: cost approach produces value higher than direct comp/income approach
Green Building Practices:
Green Building Practices: development density, use of renewable materials, innovative design
Metes:
Metes: “measurements”
Bounds:
Bounds: terrain described in conjunction w/ compass bearings/distance
Cost Approach:
Cost Approach: vacant/avail for development of its highest and best use. Most app
Assessed Value:
Assessed Value: market value of property, as date specified in assessment legislation
Comprehensive Method:
Comprehensive Method: quantitative survey and comparative unit
FORMULA :: Property Taxes:
Property Taxes: multiply assessed value of property x tax rate (mill rate)
Financially Feasible Uses:
Financially Feasible Uses: Marketability & Financial Analysis
Plottage:
Plottage: ‘value increment” lots are subdivided
Assemblage:
Assemblage: joining of lots
Surplus Land:
Surplus Land: land over and above norm for the area
Excess Land:
Excess Land: extra land can be used as additional lots
Topography:
Topography: site analysis (slopes/deep hollows etc)
Paired Sales Method:
Paired Sales Method: no major adjustments required, finding 2 identical/similar sales one with average and one with better landscaping
6 Parts -Market Analysis:
Market Analysis:
- Property Productivity Analysis
- Market Delineation
- Fore Demand
- Fore Competitive Supply
- Residual Analysis
- Fore. Subject Capture
Market Delineation:
Market Delineation: Characteristics of likely buyers, income and age are analyzed
NOI:
NOI: remains after deducting all operating expenses but before mortgage deb services
Definition- Highest Best Use:
Highest Best Use: what would land be worth if it were vacant and awaiting redevelopment, what is site worth as presently developed with improvements
4 Parts- Highest Best Use:
4 Parts- Highest Best Use:
- Physically Possible
- Legally Permissible
- Financial Feasible
- Maximally Productive
Income:
Income: allowance for vacancy / collection loss estimated as %
Highest Best Use ”funnel process” narrows range of possible uses Contract Rent=rental income specified in lease Market Rent= rent income that command in open market
1.Problem Definition 2.Analyze Legally Permissible Uses 3.Apply Principle of Change 4.Demand Analysis 5. List Probable Uses (Financial)
Highest Best Use ”funnel process” narrows range of possible uses Contract Rent=rental income specified in lease Market Rent= rent income that command in open market
1.Problem Definition 2.Analyze Legally Permissible Uses 3.Apply Principle of Change 4.Demand Analysis 5. List Probable Uses (Financial)
Highest Best Use Vacant:
Highest Best Use Vacant: any existing improvement can be demolished
Capital Cost Allowance:
Capital Cost Allowance: depreciation of assesses, claimed for tax income purpose
Special Considerations:
Special Considerations: Conforming/Non,General Use/Specific, Separate Use/Combined, Public Use/Private, Special Purpose, Excess Land, H/B as improved
Highest/Best as Improved:
Highest/Best as Improved: Continuation of existing use, modification of existing use, demolition of existing use/redevelopment
Reporting:
Reporting: Uses, Timing for uses, market participants (users, most probable buyers)
NOI excludes:
NOI excludes: depreciation, capital cost allowance, income tax, debt repayment
Present/Future Use: (for land)
Present/Future Use: current trends/demands of market to asses best use for land
Effective Gross Income:
Effective Gross Income: income from all operations of real property
Definitive Use/ Speculative Use:
Definitive Use/ Speculative Use: ‘r-urban’ underdeveloped land on fringe of urban development
Interim Use:
Interim Use: ‘holding use’ until market changes and demand for particular development is ready
Absorption Period:
Absorption Period: measure of time to sell lots in subdivision
5 Steps: Direct Comparison Approach:
- research the data
- verify
- select units of comparison
- analyze/adjust comparable
- reconcile value indications Anticipation, Change, Supply/Demand, Substitution*** (value of given property, should be no more than cost of buying another substitute), Balance, Externalities
Physical Characteristic=
Physical Characteristic= property adjustment
Breakdown method:
application of age life ratio, incurable physical deterioration
Quantitative Technique:
Quantitative Technique: Market Observation Analysis (science) isolating/separating valuing each element of comparison
Qualitative Technique:
Qualitative Technique: Appraisers judgment on experience (art) larger view comparing each comparable sale on an overall basis w/ subject property
Real Property Analysis:
Real Property Analysis: science/art. Reconciliation: (final step) indicating value estimate for subject property
Grouped Data Analysis:
Grouped Data Analysis: paired sales
IASS:
IASS: feature of comparable property inferior-Add to sale price of comparable, feature of comparable property Superior-Subtract from sale price of comparable
Special Use properties:
Special Use properties: do not lend themselves to direct comparison approach.
Relative Comparison Analysis:
Relative Comparison Analysis: ranking sales
Elements of Comparison: Not as common=
Elements of Comparison: Not as common= rights conveyed, financing terms, conditions of sale, expenditures made immediate after purchase
Elements of Comparison: Require Adjustment=
Elements of Comparison: Require Adjustment= market conditions (time), location, physical/economic characteristics, use, non realty items
Rights Conveyed:
Rights Conveyed: fee simple/freehold, life estates, leasehold, mineral rights
Observed Condition Method:
Observed Condition Method: allocates depreciation among individual Build. Components
Financing Conditions:
Financing Conditions: low interest mortgage assumptions, conditional sale contracts, purchase mortgages, seller paid concessions, atypical financing
Conditions of Sale:
Conditions of Sale: motivated sellers, motivated buyers, related parties, sales of adjacent properties, sales w/ one buyer
Expenditures Made Immediately:
Expenditures Made Immediately: immediate repairs, demolitions, zoning/redevelopment, remediation
Physical Short lived deterioration:
Physical Short lived deterioration: not curable Physical /eco short term replacement.
Market Conditions:
Market Conditions: time adjustment, Adjustments for Physical Attributes: size of land, condition, age of improvements, amenities, functional utility
Gross Adjustments “absolute adjustments” :
Gross Adjustments “absolute adjustments” total adjustments made ignoring negative signs
Physical Curable Deterioration:
Physical Curable Deterioration: cost to fix problem is less than loss in value
Net Adjustments:
Net Adjustments: difference between properties sale price and adjusted sale price
Cost to cure:
Cost to cure: cost to restore an item of a deferred maintenance/new condition
Principle of Substitution:
Principle of Substitution: holds value of a property tends to equal the cost of acquiring an equally desirable substitute property
Adjustments:
Adjustments: financing, market conditions, basement
Incurable Super adequacy:
Incurable Super adequacy: unwanted extra costs not adding to value
Ground Rate Cap:
Ground Rate Cap: (portion of total rent allocated to underlaying land) V= I / R
Curable Deficiency:
Curable Deficiency: property lacking a major component that market demands, fix the deficiency
Land Value=
Land Value= income / land capitalization rate
Functional Obsolescence:
Functional Obsolescence: functionally inadequate items whose cost cure is more than upgrading it
FORMULA: Value=
Value= ground rent (net income) / land capitalization rate
Cost Eliminating Methods:
Cost Eliminating Methods: direct and indirect costs must be calculated and included
Extraction Method:
Extraction Method: land value = sale price - depreciated building value (uses data from comparable sales to estimate depreciation)
Cost of Development method:
Cost of Development method:
(yield capitalization, subdivision analysis) land value based on redevelopment potential Projected sale price of lots: Lots#(x)price (*subtract)
New improvements:
New improvements: Market Value
Site development costs (*subtract) - Land Value
Total overhead costs (%) of projected sale total (subtract) +Depreciation
= NOI - Entrep. Profit
Holding costs and profit (%) of NOI (subtract from above total)
Super adequacy:
Super adequacy: component building exceeds standard normally in marketplace
=indicated value of undeveloped land
Depreciation:
Depreciation: accumulated loss in market value, wear and tear
Value Penalty:
Value Penalty: improvements that make no contribution to property value and constitute equivalent cost of their demolition
Short Lived:
Short Lived: furnaces, hot water tanks, carpets, cupboards
Effective Age:
Effective Age: property condition/overall maintenance
Physical Life:
Physical Life: building period of time to remain standing
Economic Life:
Economic Life: period of time improvements contribute to overall value
Economic Age-Life Method: % depreciation =
Economic Age-Life Method: % depreciation = effective age / economic life Functional Depreciation: (functional obsolescence) loss in value outdated design
