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The Cost Approach Flashcards

Terms in this set (27)

Subdivision development technique
A technique to value raw, vacant land when the highest and best use is subdivision development; the cost of developing and subdividing a parcel of land is subtracted from the sales price of the individual site
Allocation technique
An approach to valuing land that designates a percentage of the total value of an improved property to the land; most often used for new construction
Extraction technique
A technique for valuing land where the total sales price is reduced by the depreciated value of the improvements; often used for rural properties
Ground lease
Lease of land that typically involves a long period of time (50 to 99 years); the lessee usually owns improvements and pays ground rent for the land
Capitalization rate
The return on investment that other investors in a given marketplace are receiving for a similar property; expresses the income a real estate investment produces as a percentage of its price
Ground rent capitalization technique
A method of estimating land value when a ground lease exists or when the land is vacant
Reproduction cost
Construction costs at the current price point that would be necessary to exactly reproduce existing improvements to a property
Replacement cost
The construction costs at current prices to replace a property that won't be an exact duplicate, but serves the same purpose or function as the original
Direct cost
Costs associated with the labor and materials that are used in the physical construction of a structure
Indirect Cost
Costs that are required for construction but are not used directly in the physical construction of a structure
Entrepreneurial profit
The compensation an entrepreneur/developer receives (or expects to receive) in exchange for the time, effort, and risk involved in coordinating and providing expertise to the project
Square-foot method
A method for estimating reproduction cost; the appraiser multiplies the cost per square foot of a recently constructed comparable structure by the number of square feet in the subject building
Unit-in-place method
A method for estimating reproduction or replacement costs in which the costs of installed components of a building (labor and material) are calculated to determine a total cost estimate
Quantity survey method
A detailed approach to estimating reproduction cost of a building by adding together an itemized list of construction costs including overhead and profits
Index method
A method of estimating reproduction cost by using the present cost index and the cost index at the time of a structure's construction; used when the original cost of the improvements is known
Depreciation
Loss in property value from any cause
Accrued depreciation
The total loss in property value from physical depreciation, functional obsolescence, and external obsolescence.
Curable depreciation
A form of physical depreciation that it is financially feasible to remedy because the resulting increase in value or use is equal to or greater than the expense
Incurable depreciation
A form of physical depreciation indicated by a loss in value that is not economically feasible to remedy because the increase in value from the "fix" would not equal the cost to fix it
Physical depreciation
A loss in value caused by normal deterioration in physical condition of a property, including wear and tear, the elements, and time itself
superadequacy
An unnecessary or atypical extra feature; an improvement that is expensive and does not contribute a comparable amount to the property value
Functional obsolescence
A decrease in property value resulting from poor or outdated design or material
External obsolescence
A loss in value caused by an undesirable or hazardous influence away from the property itself
Age-life method
A method of measuring depreciation of a structure by comparing the structure's effective at with the structure's total economic life
Market extraction method
A method of measuring depreciation using comparable properties' sales prices
Capitalized value method
A method of estimating depreciation by comparing the income of similar properties and calculating loss in income using a capitalization rate; also referred to as the rent-loss method
observed condition method
A method for measuring depreciation where total depreciation is estimated by separately estimating each type of curable and incurable depreciation; also called the breakdown method
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