1.6 Real Estate The Business of Value

What is cost? What is Price? Hint: Budgeted for and the receipt for it.

-Cost is the money outlaid for the land the labor, and materials -Price is the money paid for something

Assessed Value

A valuation placed upon a piece of property by a public authority as a basis for levying taxes on the property.

Cost Approach

An analysis in which a value estimate of a property is derived by estimating the replacement cost of the improvements, deducting therefrom the estimated accrued depreciation, then adding the market value of the land.

What sort of Business is the Real Estate Business? Hint: We are talking about money and assessing the ______

Business of Values

Is value the same as price or cost?

No

Income Approach

One of the three methods of the appraisal process generally applied to income-producing property, and involves a three-step process: (1) find net annual income, (2) set an appropriate capitalization rate or "present worth" factor (3) capitalize the income dividing the net income by the capitalization rate.

Depreciated Value

The basis of a depreciable asset used to compute the taxable gain from its sale; the basis is acquisition cost plus capital improvements less accrued depreciation.

Market Comparison Approach

A means of comparing similar type properties, which have recently sold, to the subject property. Commonly used in comparing residential properties.

Appraised Value

An evaluation of a property's value based on a given point in time that is performed by a professional appraiser during the mortgage origination process.

Mark is looking to purchase a commercial office building. An appraiser was hired to assess the value of the building. What appraisal method did the appraiser use...? A) Market Comparison Approach B) Income Approach C) Cost Approach D) All of the above

B

Price is typically equal to the cost of the property...? A) True B) False

B

A non-profit organization in looking to purchase a church. An appraiser was hired to assess the value of the church. What appraisal method did the appraiser use...? A) Market Comparison Approach B) Income Approach C) Cost Approach D) All of the above

C

Improvements typically ............ in value? A) Rescind B) Escalate C) Appreciate D) Depreciate

D

How do appraisers attain property value? Hint: Use the 3 approaches and name them

Income Approach Market Comparison Approach Cost Approach

What is the difference between the cost approach and insured values? Hint: Historic vs Current

The cost approach looks at historic data and insurance values or "replacement" value, is based on current pricing

Insured Value

The cost of replacing a structure completely destroyed by an insured hazard.

What do appraiser districts do? Hint: They do what to the values of districts?

They give assessed values

When is depreciation used? Hint: Taxes for ONE of the 7 real estate property types

Used for preparation of income taxes for commercial properties for income reporting purposes. It is also used for selling properties of this same nature