1 CHAPTER 12 TRADITIONAL APPROACHES TO ESTIMATING VALUE

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1 CHAPTER 12 TRADITIONAL APPROACHES TO ESTIMATING VALUE • Sales Comparison Approach • Cost

1 CHAPTER 12 TRADITIONAL APPROACHES TO ESTIMATING VALUE • Sales Comparison Approach • Cost Approach • Income Capitalization Approach Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

2 THE SALES COMPARISON APPROACH • Identify properties that have sold that are comparable

2 THE SALES COMPARISON APPROACH • Identify properties that have sold that are comparable to the subject property. • Adjust each comparable property’s sale price to account for its differences from the subject property. • Reconcile the comparable properties’ final adjusted sale prices to determine a single indicated value. Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

3 Types and Sequence of Adjustments • Transaction Price +/- Conditions of Sale +/-

3 Types and Sequence of Adjustments • Transaction Price +/- Conditions of Sale +/- Financing Terms • Normal Sale Price +/- Market Conditions • Market-adjusted Normal Sale Price +/- Location +/- Physical and Legal Characteristics, etc. • Final Adjusted Sale Price Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

4 Estimate of Adjustment for Market Conditions Copyright © 2001 by The Mc. Graw-Hill

4 Estimate of Adjustment for Market Conditions Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

5 Paired Sales Analysis Adjustment Copyright © 2001 by The Mc. Graw-Hill Companies, Inc.

5 Paired Sales Analysis Adjustment Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

6 Simplified Example: Market Data Grid Copyright © 2001 by The Mc. Graw-Hill Companies,

6 Simplified Example: Market Data Grid Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

7 Simplified Example: Adjustment Grid Copyright © 2001 by The Mc. Graw-Hill Companies, Inc.

7 Simplified Example: Adjustment Grid Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

8 Simplified Example: Reconciliation of Final Adjusted Sale Prices Copyright © 2001 by The

8 Simplified Example: Reconciliation of Final Adjusted Sale Prices Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

9 MULTIPLE REGRESSION MODELS • A Linear Multiple Regression Equation: Copyright © 2001 by

9 MULTIPLE REGRESSION MODELS • A Linear Multiple Regression Equation: Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

10 Estimated Regression Model Statistics Copyright © 2001 by The Mc. Graw-Hill Companies, Inc.

10 Estimated Regression Model Statistics Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

11 THE COST APPROACH Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All

11 THE COST APPROACH Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

12 Estimation of the Cost of the Improvements • Reproduction Cost • Replacement •

12 Estimation of the Cost of the Improvements • Reproduction Cost • Replacement • Cost Estimation Methods – Comparative Unit (e. g. , $/sq. ft. ) – Unit in Place (e. g. , $/component installed) – Breakdown Approach (e. g. , labor, materials, etc. ) Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

13 Estimation of Accrued Depreciation • Physical Deterioration – Short-lived (curable and incurable) –

13 Estimation of Accrued Depreciation • Physical Deterioration – Short-lived (curable and incurable) – Long-lived • Functional Obsolescence – Curable – Incurable • External Obsolescence Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

14 GROSS RENT MULTIPLIER ANALYSIS • Identify comparable rental properties that have sold recently.

14 GROSS RENT MULTIPLIER ANALYSIS • Identify comparable rental properties that have sold recently. • Calculate the gross rent multiplier for each comparable property. GRM = sale price/monthly gross rent Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

15 GROSS RENT MULTIPLIER ANALYSIS • Estimate the market rent of the subject property

15 GROSS RENT MULTIPLIER ANALYSIS • Estimate the market rent of the subject property from comparable properties. • Estimate the value of the subject property where, V = subject’s gross rent x GRM. Copyright © 2001 by The Mc. Graw-Hill Companies, Inc. All rights reserved.