Real Estate Appraisal 2 Flashcards
(25 cards)
Approaches to market value
Cost approach
Sales comparison approach
Income approach
Cost approach
Value is derived by reproducing a new property and depreciating it to be comparable
Cost approach value estimate =
value of new improvements - accrued depreciation \+ value of site \+ as-is value of improvements = value estimate
Cost types in the construction process
Direct cost
Indirect cost
*Factored in with profit for value
Types of depreciation
Physical deterioration (wear/tear) Functional obsolescence (dated) External obsolescence (RR)
How to calculate depreciation
Effective age / total economic life
Times cost approach is useful
Special purpose commercial properties
New residential homes
Fire/hazard insurance
Sales comparison approach
Value is derived by comparing the property being appraised to similar properties sold recently
Apply appropriate units of comparison and make adjustments to the sales prices based on the units
Steps to the sales comparison approach
Select comparable properties (location, sq ft, age, design)
Adjust sales prices of comparable
Reconcile adjusted prices to indicate value of subject property
What affect does the presence/absence of a characteristic have on the sale price of a comparable property?
CPA - if Comparable Poorer, Add to the sale price
CBS - if Comparable Better, Subtract from sale price
What are the 2 types of adjustments?
Dollar and percentage
*Wanting to make the comparable property more like the subject
Elements of comparison and adjustment
Financing terms Time Location Physical characteristics Non-realty components
Property rights conveyed
Fee simple
Leased Fee
Easements
-Want comparable to have the same property rights
Financing terms
Look for terms that would affect the price
Conditions of sale
Does the sale price of the comparable represent the price that would be achieved in a competitive market?
Expenditures made immediately after purchase
If the buyer has to make repairs, price was probably reduced for cost of them
Market conditions
The same or different when sale of comparable vs date of value
Economic characteristics
Affect the income-earning potential of the property
Times the sales comparison approach is useful
Residential homes
Land/lot appraisals- no real cost
Income approach
Value derived by analyzing a property’s capacity for earnings and capitalizing the income into a present value
Rent, direct cap, and yield cap for income approach
Rent = value
Direct cap=1 yr income stream
Yield cap=multi-yr income stream
Income capitalization techniques
Direct capitalization
Yield capitalization
-Should yield similar results when adequate data is available
Direct capitalization
Used to convert a single year’s cash flow estimate into an indication of value
Yield capitalization
Used to convert a stream of income estimates, including reversion from resale, into an indication of value
-Discounted cash flow analysis
