Chapter 9 - Review Questions - Quiz 9

Highest & Best Use

The legally and physically possible use of land that is likely to produce the highest land (or property) value. It considers the balance between site and iprovements as well as the intensity and length of uses.

What are the four tests in the highest and best use analysis?

1) physically possilble - limited by site's size, shape, topography, drainage, etc.2)legally permitted - Consideration of zoning, building codes, hazardous areas & CC&Rs 3) financially, or economically feasible - present or anticipated market conditions 4) maximally productive - highest financial return and property price

nonconforming use

A once lawful property use that is permitted to continue after a zoning ordinance prohibiting it has been established for the area; a use that differs sharply from the prevailing uses in a neighborhood.

zoning

Is an exercise of police power by a municipality or county to regulate private activity by enacting laws that benefit the health, safety, and general welfare of the public. These zoning requlations typically include the following: Permitted uses, Minimun lot-size requirements, types of structures permitted, limitations on building size and height, minimum setbacks from lot lines, and permitted density (buildings per acre).

Explain how the terms land and site differ.

Land is the earths surface & everything on it or under the surface, and site has improvements such as utilities with make it desirable to build on the land.

Sales comparison method

Sales of similar vacant sites are analyzed and compared. After any necessary adjustments to sales prices are made, the appraiser arrives at an opinion of value for the subject site.

Subdivision development method

The cost of developing and subdividing a parcel of land are subtracted from the total expected sales prices of the separate sites, adjusting for the time required to sell all of the individual sites, to determine the value of the undivided raw land.

Land residual method

The net income earned by the building is deducted from the total net income of the property; the balance is attributed to the land. The residual of leftover income is then capitalized to indicate the land value. The formula used for this method is: property net income - building net income= Land net income, then land net income / land capitalization rate = land value

Cost approach

The process of valuing a property by adding the appraiser's estimate of the reproduction or replacement cost of property improvements, less depreciation, to land value.

Allocation method

This is used when the land value of an improved property must be found. The ratio of land value to building value typical of similar improved properties in the area is applied to the total value of the subject property to arrive at the land value of the subject.

Ground rent capitalization method

When a landowner leases land to a tenant who agrees to erect a building on it, the lease is usually called a ground lease. Ground rents can be capitalized at an appropriate rate to indicate the market value of the site.

Abstraction method (extraction method)

When the sales price of a property is known, the cost of all improvements can be subtracted from it to find land value.

A church in a residential area is an example of?

a nonconforming use

Another term for developer's profit is?

entrepreneurial profit

All improvement costs, less deprecitation, are subtracted from sales price to derive land value in the process is called?

extraction

Ground rent capitalization method formula

ground rent per year of $100,000, if the appropriate rate for capitalization of ground rent is 10%, the estimated value by direct capitalization is $100,000 / .10 = $1,000,000.

Private deed restrictions often are enforeced through whom?

homeowners' association

Zoning is an exercise of a government's?

police power