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What is the most important step in appraisals?
To define the object being appraised
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What are the three different types of data used for an appraisal?
General, Specific, and data for each of the appraisal approaches
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What is general data?
The nation, region, state, city, and neighborhood
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What is specific data?
Details of the subject property and any improvements to the property
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What is Sales Comparison Approach
Grounded on the principle of substitution that states that consumers will pay no more for a property than other consumers have paid for comparable properties.
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What is the cost approach to appraising?
Used to find the value of a new or special-purpose building, schools, churches, ect.
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What are the 5 steps of a cost approach appraisal?
- 1. Estimate the value of the site as though vacant
- 2. Estimate the cost of improvements if new
- 3. Estimate the accruded depreciation
- 4. Subtract depreciation from improvements to get present value of the improvements
- 5. Add estimated value to results of step 4.
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What are the two methods of determing the value of the subject building?
Reproduction and Replacement
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What is Reproduction?
Cost of construction an exact replica
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What is Replacement?
The cost on constructing a building having comparable utility or like use, using current standards or materials and design, and built at current prices
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What is physical deterioration
Result of normal wear and tear inflicted on the property
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What is functional obsolescence?
Loss of value attributed to outdated equipment, eccentric design, and/or social change
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What is External Obsolescence?
Loss of value due to factors located outside of the subject property boundaries that leaves the property owner with no direct input to correct the obsolescence
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What is the Income Approach?
Also the Capitalization Method, evaluates the present value of the income producing property based upon a flow of future benefits
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Two steps to determining the Income Approach?
- 1.Estimate the Net Operating Income (NOI)
- 2. Convert the estimated NOI to a value by using the capitalization process (CAP RATE)
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How to determine the NOI?
- 1. Estimate the annual potential gross income
- 2.Add other income laundry facilities, parking fees, ect
- 3. Subtract loss due to vacancy
- 4. Results in the projective effective gross income
- 5. Determine the expenses; payroll, utilities, management fees, ect.
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