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Real Estate Chapter 7/8
Terms in this set (22)
an unbiased written estimate of the fair market value of a property
Three approaches to value
(1) The Sales Comparison Approach, (2) The Cost Approach, (3) The Income Approach.
Sales Approach to Value
- Values a property based on recent comparable sales
* Selling prices of properties of similar size, quality, and market are used to estimate value
Sources of Market Data
public records, multiple listing services, private data services
concern the nature and terms of the deal
Cost approach to value
An estimate of market value based on current construction costs, less depreciation, plus land value. Contrast with the income approach to value and the sales comparison approach to value.
the cost to build a new building that is exactly like an existing building in every physical detail
The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.
difference between current market value and the total cost to construct it new
Loss of value of a building from wear and tear over time.
a loss in the value of a structure due to changes in tastes, preferences, technical building innovations, or market standards.
loss of value due to factors beyond the property boundaries
Depreciation is considered curable if the cost of the repair is less than what the repair adds to the value of property.
Physical deterioration that cannot be repaired in a cost-effective manner
The process of estimating the value of a property by dividing a property's annual net operating income by an overall capitalization rate.
discounted cash flow (DCF) valuation
valuation calculating the present value of a future cash flow to determine its value today
estimation of valuation cap rates
r = NOI/sales price
Band of Investment Method
A procedure to determine the capitalization rate to be used for a particular property under the income approach.
R0 = mRm+ (1-m)Re Where m=L/V ratio; Rm=Mortgage Constant ;Re=Equity Return
Gross Income Multiplier
A figure used as a multiplier of the gross annual income of a property to produce an estimate of the property's value.
GIM= Sale Price/EGI
Value = EGI*GIM
Net Income Multiplier
= Acquisition Price/NOI
Pro Forma Statement
- operating expenses
- debt service
THIS SET IS OFTEN IN FOLDERS WITH...
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