1
Q
land units of comparison
A
front ft sq ft acre site buildable units
2
Q
land adjustments to consider
A
financing (1st) time location topography shape of lot access corner influence economic influence
3
Q
In this method the appraiser establishes the value of standard or base lot in each stratum through traditional sales comparison analysis, with the base lot serving as the subject parcel.
A
base lot method
4
Q
Sale price - improvement value = land value
Improvement must be fairly new.
Depreciation must be limited.
Must know the RCN of the improvement.
A
abstraction
5
Q
Uses land-to-building ratio.
Assumption that land values are known.
A
allocation
6
Q
A feasible method when land is rented or leased independently of improvements.
Must establish economic rents and an appropriate capitalization rate.
Remember the land does not recapture when developing the cap rate.
V = I/R
V = value
I = income
R = Capitalization rate
A
Capitalization of ground rents
7
Q
- Estimate the projected sale price of the land.
2. Estimate the site development costs, overhead costs and profit.
3. Subtract site development costs and overhead costs from projected sale price to get the net income before holding costs and profit.
4. Subtract holding costs and profit from the net income before holding costs and profit.
5. Residual is estimated land value.
6. Large number of estimates and very little hard data.
7. Used most often with transitional land.
A
Cost of development
8
Q
The principle of ____________ states that a rational, informed purchaser will pay no more for a property than the cost of acquiring an acceptable substitute with like utility, assuming that no costly delay will be encountered in making the substitution.
A
substitution
9
Q
Value (V) = Land Value (LV) + Improvement Value (IV) less depreciation + other building value (OBV).
A
cost approach
10
Q
labor, materials, supervision are ____ costs
A
direct costs
11
Q
direct costs
A
labor, materials, supervision
12
Q
- Insurance
2. Architect fees
3. Building permit fees
4. Interest
5. Taxes incurred during construction
A
indirect costs
13
Q
indirect costs
A
- Insurance
2. Architect fees
3. Building permit fees
4. Interest
5. Taxes incurred during construction
14
Q
This is the cost of constructing a building identical to the subject in floor plan, style, and all aspects, using the same materials. This method includes the added cost of obsolete design, building techniques and materials.
A
reproduction cost
15
Q
This is the construction of a building having the same utility as the subject, as well as the same general amenities, although the building may differ in architectural design, materials of construction and floor plan. This method should be based on typical costs and it is the method most often used by appraisers.
A
Replacement cost -
16
Q
cost index, depreciation schedules, market adjustment factors, and time and location adjustment are
A
cost modifiers
17
Q
This method is the complete itemization of detailed direct and indirect costs encountered in the construction of a building.
A
The Quantity Survey Method -
18
Q
- Tends to produce reproduction costs.
2. Used mostly by building estimators and contractors.
3. Indirect costs estimated separately.
4. Seldom used by appraisers.
A
The Quantity Survey Method -
19
Q
This method is a modification of the quantity survey method in which the direct and indirect costs of the building elements are combined to form a complete unit cost for each of the building components. These units, when mutliplied by the building areas involved, result in a total building cost. This method is used mostly by contractors.
A
unit in place method
20
Q
- Horizontal costs (floors, roofing, foundations, etc.) are calculated on a square foot basis.
2. Vertical costs (exterior walls, interior partitions, etc.) are calculated on a per linear foot basis.
3. Lump sum items (water heaters, fireplaces, etc.) are handled separately.
4. Includes all direct and most indirect costs.
5. Used in mass appraisal to develop benchmark costs, adjust for nonstandard features and to appraise unique properties.
A
unit in place method
21
Q
In this method all costs are expressed on a per square foot basis. The per square foot costs can be obtained from an outside source (i.e. Marshall and Swift) or developed in-house.
A
comparative unit method
22
Q
- One base rate is developed for each building class.
2. Costs are arrayed in schedules and indexed by building type, size, etc.
3. Most common method used in mass appraisal.
4. Tends to produce replacement costs. - Adjustments are made for differences from base specifications.
A
comparative unit method
23
Q
This method is the least accurate of all the costing methods. It requires knowledge of the date of construction and the original cost. Involves an indexing of historical costs to current costs. A trending factor is multiplied by the original cost to find an estimate of today’s value.
A
the trending method
24
Q
- Tends to produce reproduction costs.
2. Used in mass appraisal to appraise unique properties for which the cost of construction is known and to help validate cost estimates produced by other methods.
A
the trending method
25
The loss in value due to all causes except depletion, as of the date of the appraisal.
accrued depreciation
26
a. Physical deterioration - The loss in value due to wear and tear in service and the forces of nature.
b. Functional obsolescence - The impairment of functional capacity or efficiency and is a loss in value brought about by such factors as overcapacity, inadequacy, and changes in style, taste, technology and demands.
c. Economic obsolescence - The loss in value brought about by changing economic forces such as changes in highest and best use, legislation, etc.
forms of depreciation
27
The loss in value due to wear and tear in service and the forces of nature.
Physical deterioration
28
The impairment of functional capacity or efficiency and is a loss in value brought about by such factors as overcapacity, inadequacy, and changes in style, taste, technology and demands.
Functional obsolescence -
29
The loss in value brought about by changing economic forces such as changes in highest and best use, legislation, etc.
Economic obsolescence -
30
a. Curable - Also called deferred maintenance. An item may be considered curable when the cost of repair or replacement is at least offset by the value added to the property.
1. Cost to cure.
b. Incurable - Is deterioration that is not generally economical to repair or replace.
1. Short-lived - floor covering, ceiling, plumbing fixtures, roof cover, windows
Example: Roof - $5,000 x .50 = $2,500
2. Long-lived - foundation, floor structure, electrical wiring, frame
Example: Structural costs - $131,000 x .50 = $65,500
Must remember to subtract out short-lived items before
finding depreciation for long-lived items.
physical deterioration
31
Also called deferred maintenance. An item may be considered curable when the cost of repair or replacement is at least offset by the value added to the property.
curable physical deterioration-use cost to cure
32
Is deterioration that is not generally economical to repair or replace.
incurable physical deterioration
33
floor covering, ceiling, plumbing fixtures, roof cover, windows
short lived incurable physical deterioration
34
foundation, floor structure, electrical wiring, frame
long lived incurable physical deterioration
35
a. Curable - Obsolescence that is economically prudent to cure. There are three types of curable functional obsolescence. They are:
1. Deficiency: Exists when an item is required by the market but does not exist in the subject property.
Example: lack of air conditioning
Measured by the cost to cure less RCN.
2. Modernization: Occurs when an item already exists in the subject property, but is not up to modern standards as required by the market place.
Example: old fashioned bathroom or kitchen fixtures.
Measured by the cost to cure, less depreciated value of the existing item.
3. Superadequacy: Occurs when items in the subject property are more than adequate to perform the function needed.
Example: A structure with a 10 ton air conditioning unit when a 5 ton unit would be adequate.
Measured by the current RCN less any physical depreciation already charged plus the cost to install a normally adequate unit.
b. Incurable - Conditions that are physically or economically impractical to correct.
Examples: poor room arrangement, high ceilings
Measured by rent loss resulting from these problems.
Example: lack of adequate closest space results in a loss of $7.00 per month in rent. The incurable functional obsolescence attributed to this problem would be $7.00 x 10 apartments x 12 months x 7 GIM = $5,880
functional obsolescense
36
Obsolescence that is economically prudent to cure. There are three types of curable functional obsolescence.
1) deficiency
2) modernization
3) superadequacy
curable
37
Exists when an item is required by the market but does not exist in the subject property.
Example: lack of air conditioning
Measured by the cost to cure less RCN.
curable-deficiency
38
Occurs when an item already exists in the subject property, but is not up to modern standards as required by the market place.
Example: old fashioned bathroom or kitchen fixtures.
Measured by the cost to cure, less depreciated value of the existing item.
curable-modernization
39
Occurs when items in the subject property are more than adequate to perform the function needed.
Example: A structure with a 10 ton air conditioning unit when a 5 ton unit would be adequate.
Measured by the current RCN less any physical depreciation already charged plus the cost to install a normally adequate unit.
curable-superadequacy
40
Also calculated by determining the amount of rent loss.
economic obsolescence-incurable
41
1. Sales Comparison
a. Depreciation = RCN - (sale price - land value).
b. % Depreciation = Depreciation/RCN
2. Capitalization of income
indirect methods of measuring physical depreciation
42
1. Overall age-life
a. Economic life - The expected life of the building.
b. Actual age
c. Effective age - The number of years indicated by the condition of the building.
d. Remaining economic life
1. Economic life - effective age = remaining economic life
2. Effective age/economic life = % depreciation
direct methods of measuring physical depreciation
43
The expected life of the building.
expected life
44
The number of years indicated by the condition of the building.
effective age
45
Economic life - effective age =
remaining economic life
46
Effective age/economic life =
% depreciation
47
MEASURING FUNCTIONAL OBSOLESCENCE:
A. Directly from the market.
1. Paired sales
2. Rent loss x GIM (gross income multiplier)
48
MEASURING ECONOMIC OBSOLESCENCE:
A. Directly from the market.
1. Paired sales
2. Rent loss x GIM x % building value
49
1. Defining the appraisal problem.
2. Collecting and analyzing the data.
3. Selecting the appropriate units of comparison.
4. Making reasonable adjustments based on the market.
5. Applying the data to the subject property.
STEPS IN THE SALES COMPARISON APPROACH:
50
1. Per front foot
2. Per square foot
3. Per cubic foot
4. Per bay
5. Per room
6. Per apartment
7. Per parking stall
8. Gross income multiplier or Gross rent multiplier
units of comparison
51
units of comparison in the sales comparison approach
1. Per front foot
2. Per square foot
3. Per cubic foot
4. Per bay
5. Per room
6. Per apartment
7. Per parking stall
8. Gross income multiplier or Gross rent multiplier
52
1. Lump-sum dollar adjustments
2. Cumulative percentages
3. Multiplicative percentages
4. Hybrid adjustment
APPLICATION OF ADJUSTMENT METHODS:
53
? = Sale price/gross annual income
| ? = Sale price/gross monthly income
GIM, GRM
54
Commercial GIM typically between _____ range.
| Residential GRM typically between ____ range.
5-15, 90-110
55
1. Estimate potential gross income (PGI).
A. Use economic (market) rents
B. Historical rents may be economic rents.
C. Monthly rents must be converted into annual income.
D. Chose comparable rental properties.
E. Market rent x rentable units = PGI
income approach step 1
56
2. Estimate and deduct for vacancy and collection loss.
A. Vacancy loss = vacant units/total number of units x 100
a. Express vacancy loss as a percentage of potential gross income.
B. Collection loss = Amount uncollected/total rents billed x 100
a. Express collection loss as a percentage of potential gross income.
income approach step 2
57
Vacancy loss = ?
a. Express vacancy loss as a percentage of potential gross income.
vacant units/total number of units x 100
58
Collection loss = ?
a. Express collection loss as a percentage of potential gross income.
Amount uncollected/total rents billed x 100
59
Estimate and add miscellaneous income.
A. Income generated from the property that does not include actual rent.
B. Examples: parking rental, resale of utilities, clubhouse rent, laundry, etc.
income approach step 3
60
Calculate Effective Gross Income (EGI).
A. Effective Gross Income = PGI - vacancy loss - collection loss + miscellaneous income.
income approach step 4
61
Effective Gross Income = PGI - ???
vacancy loss - collection loss + miscellaneous income.
62
Effective Gross Income = PGI - ???
vacancy loss - collection loss + miscellaneous income.
63
Determine operating expenses.
A. Allowable expenses are only those that are necessary to operate and maintain the property. For example, management, utilities, insurance, lawn care.
B. Non-allowable expenses include depreciation, debt service, taxes etc.
C. Reserves for replacement are annual predetermined expenses, the cost of which is calculated and divided on an annual basis and set aside annually for the eventual replacement of the items. Examples: roof cover, HVAC systems, floor coverings, dishwashers and refrigerators.
To calculate reserves for replacement you will need to know the economic life of the item and the replacement cost new. If an item costs $10,000 and it has an economic life of 15 years the annual reserve for replacement amount would be:
$10,000 x (1/15) or $670.
D. Capital improvements, such as additions, are not considered reserve items or normal expenses.
income approach step 5
64
To calculate reserves for replacement you will need to know the economic life of the item and the replacement cost new. If an item costs $10,000 and it has an economic life of 15 years the annual reserve for replacement amount would be:
$10,000 x (1/15) or $670.
65
step 7 in income approach:
6. Find net income.
A. Net income = ?
EGI - operating expenses.
66
step 6 in income approach:
6. Find net income.
A. Net income = ?
EGI - operating expenses.
67
. Develop the appropriate capitalization rate.
A. Components of the capitalization rate.
1. Discount rate - Band of investment method
Market comparison
2. Recapture rate - Reciprocal of remaining economic life
Market comparison
3. Effective Tax rate - Assessment level x mill levy
Market comparison
income approach step 7
68
Effective Tax rate
Assessment level x mill levy
69
The overall rate (OAR) =
net income/sale price
70
This rate is calculated by using the mortgage constant and the equity dividend rate.
Mortgage-equity band-of-investment method.
71
Mortgage-equity band-of-investment method.
Mortgage percentage x annual mortgage constant
Equity percentage x equity dividend rate
Add the rates together to get an overall rate
72
Convert net income into value.
A. Value = ?
income approach step 8
net income/capitalization rate
73
Sales ratio formula: ? = Sales Ratio
Appraised Value/Sales Price
74
A RATIO STUDY HAS THREE BASIC FUNCTIONS:
A. Monitor appraisal performance (testing for compliance)
1. Level of appraisal
2. Uniformity of appraisals
B. Identify appraisal priorities and problems
1. Evaluating the effectiveness of various appraisal
procedures.
2. Monitoring the work of individual appraisers.
3. Gauging the merit of taxpayer appeals.
C. Develop market adjustment factors
75
The median is the midpoint or middle ratio, when the ratios have been arrayed. If the sample contains an even number of observations, it is the average of the two middle numbers.
Median -
76
The mean is the average ratio. It is obtained by summing the ratios and then dividing by the number of ratios.
Mean -
77
The weighted mean weights each ratio in proportion to its sale price. It is calculated by summing the appraised values for the entire sample, then summing the sales prices for the entire sample and then dividing the sum of the appraised values by the sum of the sales prices.
Weighted Mean (aggregate ratio) -
78
is the most widely used measure of uniformity in ratio studies and it measures the average percent difference from the median. It is expressed as a percentage which allows direct comparisons among property groups. The steps in finding the COD are:
Coefficient of dispersion (COD)
79
find the COD
1. Find the median
2. Subtract the median from each ratio.
3. Take the absolute values of the differences.
4. Sum the absolute differences.
5. Divide by the sample size to obtain the "absolute deviation".
6. Divide by the median.
7. Multiply by 100 to express the result as a percentage.
80
calc standard deviation
The steps in calculating the standard deviation are:
1. Subtract the mean ratio from each individual ratio.
2. Square the resulting differences.
3. Sum the squared differences.
4. Divide this total by the number of samples minus one.
5. Take the square root of the answer from step #4.
81
In a normal distribution, the COV is about __ percent larger than the COD. However, because the COV is based on the standard deviation, which squares deviations from the mean, it is more sensitive to outlier ratios than the COD.
25
82
To calculate the COV you take the
standard deviation and divide it by the mean then multiply by 100 to convert to a percentage.
83
The price related differential is a statistic for measuring assessment regressivity or progressivity. Appraisals are considered regressive if high-value properties are under-appraised relative to low-value properties. It is progressive if high-value properties are relatively over-appraised.
Price Related Differential (PRD) -
84
The steps in calculating the PRD are as follows:
1. Find the mean ratio.
2. Find the weighted mean ratio.
3. Divide the mean ratio by the weighted mean ratio,
85
A PRD greater than ___ suggests that high-value parcels are under-appraised. A PRD of less than ___ indicates that high-value parcels are over-appraised.
1.03, .98
86
Appraisal Uniformity:
1. Single-family residences
A. Generally ___ or less
B. Newer homogeneous areas ___ or less
15, 10
87
Appraisal Uniformity:
1. income producing property
A. Generally ___ or less
B. Larger urban jurisdictions areas ___ or less
20, 15
88
Appraisal Uniformity:
1. vacant land an other
A. Generally ___ or less
20
89
shows the number of ratios falling within specified intervals. can reveal trends or patterns that might be missed in viewing large data samples. To construct a ______ you first array the ratios, select intervals in which to group the ratios and then count the number of ratios in each interval.
Frequency Distributions
90
Rules to follow when constructing a frequency distribution are:
1. Choose at least five and not more than 15 intervals.
2. Choose intervals that will accommodate all the data.
3. Choose intervals that do not overlap.
4. Choose intervals of equal length.
5. Choose intervals that are easy to work with and understood.
91
is a bar chart or graph of a frequency distribution. The heights or areas of the bars indicate the number or percentage of the ratios that fall in each interval. The highest bar represents the most common level of appraisal, and the tightness of the distribution depicts uniformity.
Histograms
92
graph of the relationship between two variables
scatter diagram
93
The independent variable is on the horizontal (X) and the dependent variable is on the vertical (Y) axis. Typically in ratio study analysis the ratio is the dependent variable and the independent variables are the property characteristics.
scatter diagram
RMA commercial case study exam
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