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IAAO Course 101 Review
Terms in this set (98)
Tax Rate (def.)
Percent of assessed value at which each property is taxed in a given district.
Tax Rate (formula)
Tax revenue (amount) / Assessed value
Property Tax (formula)
Subject assessed value / Tax rate
Budget Revenue (formula)
Total budget - Other taxes
Effective Tax Rate (def.)
Reflects the relationship between total property taxes on real property and the property's market value.
Effective Tax Rate (formula)
Assessment ratio (level) X Tax rate
Jurisdictions tax rate is derived by (formula)
Budget revenue (budget -other taxes) / Assessed value
Assessment Ratio (def.)
Estimated fractional relationship between the assessed values and market values of a group of properties.
Assessment Ratio (formula)
Assessed value / Market value
Neighborhood Life Cycle
Growth, Stability, Decline & Revitalization
Principle of Conformity
Value of a property depends on its relationship to its surroundings; maximum market value is achieved when reasonable similarity among improvements in the neighborhood.
Principle of Competition
Created by the potential for profits; availability must be in harmony with demand; if one or the other is in excess prices will decrease or increase.
Principle of Balance
Applied to an individual property; maximum value is obtained when the four agents of production are balanced - land, labor, capital and management.
Principle of Change
Market value is never constant; estimate of market value is only valid as of a specific date & changes in the market will impact future value estimates.
Principle of Anticipation
Value created by the expected future benefits from the property; related to the Principle of Change.
Principle of Consistent Use
Property must be valued with a single use for the entire property; land cannot be valued with one use and improvements with another.
Principle of Contribution
Value of component depends on its contribution to the whole; basis for adjustments in the sales comparison approach.
Principle of Supply
Amount of product producers are willing to sell under various conditions during a given period.
Principle of Demand
Amount of product producers are willing and able to buy during a given period; given the choices available.
Principle of Increasing & Decreasing Returns
Addition of successive increments of one agent of production will decrease future incomes or amenities; or additions of successive increments of one agent of productions added, future income or amenities will increase to a point.
Principle of Progression
Association with better properties of the same type increase value of a lower priced property.
Principle of Regression
Association with lower quality properties of the same area decrease the value of a better quality property.
Principle of Substitution
Market value of a property set by cost of acquiring an equally desirable and valuable property; underlies the 3 approaches to appraisal (value).
Principle of Surplus Productivitiy
Net income remaining after the costs of labor, management and capital have been satisfied; income earned by land; increase income = increase value.
Types of Neighborhood Boundaries
Natural, Political and Man-made
Basic steps in definition of the appraisal problem are...
1) Identify the property
2) Determine property rights conveyed
3) Purpose or function of the appraisal
4) Date of appraisal (date of value)
5) Definition of value
Property Rights Conveyed (bundle of rights)
1) right to Sell
2) right to Lease or rent
3) right to Use
4) right to Give away
5) right to Enter or leave
6) right to Refuse to do anything
1) Police power
2) Eminent domain
Estates in Property (types)
1) Fee simple
2) Leasehold interest
3) Leased fee interest
4) Possessory interest
5) Life estate
Ownership of all rights to the property except governmental restrictions.
Lease Fee Interest
Rights of possession and use of property
Ownership limited to the life of the owner
Value in Use
Represents the value of a property to a specific user or for a specific use.
Ethics provision of the Intro to USPAP consists of the following...
Conduct, Management, Confidentiality, Record Keeping
For all property, the assessor is responsible for....
1) Discovery of all property
2) Listing all property
3) Valuation of all property
Elements in the marketplace that contribute to the change in demand
1) Consumer tastes & preferences
2) Consumer income
3) Price of related commodities
4) Consumer expectations
5) Price of the commodity
Elements in the marketplace that contribute to the change in Supply
1) Cost of production
2) Price of other goods
3) Entrepreneur's expectations
4) Number of sellers
Under the steps in the appraisal process that is termed Data Collection and analysis, specific data includes....
1) Site data
2) Off site data
Under the steps in the appraisal process that is termed Data Collection and analysis, general data includes...
1) Physical (environmental)
Under the steps in the appraisal process that is termed Data Collection and analysis, comparative data includes...
3) Income & expense
Steps in the appraisal process are
1) Definition of the problem
2) Preliminary survey and analysis
3) Data collection and analysis ( general, specific & comparative)
4) Highest and best use
5) Application of data (cost, sales & income)
6) Correlation / reconciliation of value
Shows the boundaries of parcels of land and display size and location of each parcel relative to other properties & other physical features; drawn to scale shows dimensions or areas and parcel ID
Metes and Bounds
Based on semi-permanent physical features or bearings on a compass.
Subtract the depreciated cost of improvements from the sale price of an improved property; remainder = land value.
Sale price - Depreciated improved value = land value
Determine ratio of land value to building value in similar neighborhoods that have vacant land sales.
Combining 2 or more parcels creating a site that has greater utility and increased value.
Combining 2 or more parcels into one common ownership; unit value does NOT increase.
4, 3, 2, 1 Rule
Based on the observation that the front section of a lot is more valuable on a unit basis than the rear portion.
Factors affecting land values are...
1) Physical (environmental)
Methods of Land Valuation
1) Direct sales comparison
4) Anticipated use or development
5) Capitalization of ground rent
6) Land residual technique
A township in the rectangular survey system contains ______ sections.
Each section contains ___________ acres.
When valuing land using the direct sales comparison approach, sales must first be ____________ into homogeneous groups.
Examples of basic units of comparison are
Front foot, square foot and acre
In order for a property to have value, it must have
Utility, scarcity and desirablilty
The four tests for highest and best use are
1) Physically possible
2) Legally permissible
3) Financially feasible
4) Most productive
The point where the forces of supply and demand meet.
Types of private encumbrances that can be placed on ownership of real property are
1) Rights of co-owners
2) Condo and subdivision restrictions
3) Covenants, conditions and restrictions found in the chain of title to the property.
5) Easements and rights of way
6) Liens and judgments
Generally used systems of land identification are
1) Metes and bounds
2) Rectangular survey system (rng/twp/sec)
3) Lot and block
In a section 1 acre = ____________
In a section 1 section = ___________ or ___________
1 square mile or 640 acres
1/4 of a section = ___________
1/4 of a 1/4 of a section = ___________
Loss of value as a result of impairment inutility and desirability caused by factors outside the properties boundaries; incurable.
Loss in value due to inability of the structure to perform the function; changes in demand, design, taste and technology; can be curable or incurable.
Types of Physical Depreciation
Curable physical, incurable physical (short-lived) and incurable physical (long-lived)
Curable Physical Depreciation
Measured by cost-to-cure; deferred maintenance, immediately repaired, broken window, cracked toilet, etc.
Incurable Physical Depreciation (short-lived)
Measured by age-life; items not ready to be replaced by will probably be replaced soon; economic life less than total improvement, carpet, water heater, roof.
Incurable Physical Depreciation (long-lived)
Measured by age-life; not deferred maintenance, same age and life expectancy; wall studs, insulation, foundation, etc.
Gross Rent Multiplier (GRM)
Typically used with single family; relationship between gross monthly rent and value of property; can be used to measure incurable functional & external obsolescence; Formula ->sale price / monthly gross income
Methods of Measuring Depreciation
1) Indirect = sales comparison & capitalization of income.
2) Direct = age/life, modified age/life, observed condition, application of GRM & GIM
Gross Income Multiplier (GIM)
Generally used with commercial and apartments; formula -> sale price / annual gross income.
Typically occur at the construction site and include: labor, materials, supervision, equipment rental & utilities.
Indirect Costs (soft costs)
1) Architecture & engineering fees
2) Building permits
3) Title and legal expenses
5) Real estate taxes during construction
6) Construction loan fees
7) Advertising and sales expense
8) Overhead & profit
Methods of Estimating Cost
1) Quantity Survey Method
2) Unit in Place
3) Square foot / Comparative Unit Method
4) Trended Original Cost / Factored Historical Cost
Factored Historical Cost (formula)
Current year / historic year = trend factor
Characteristics of Cost
2) Design type
3) Construction type
4) Floor area
5) Building shape
6) Story height
7) Make a sketch of building and calculate size (sf)
Cost Approach Steps
1) Estimate land/site value as if vacant and available for development to its HBU.
2) Estimate total cost new of improvements
3) Estimate total depreciation
4) Subtract depreciation from the cost new of improvement.
5) Add land/site value to depreciated improved value.
Total Economic Life -TEL- (formula)
Effective age (EA) + Remaining economic life (REL)
Age-Life Depreciation (formula)
Effective age (EA) / Total Economic Life (TEL)
Sales Comparison Approach - Adjustments can be found by using
1) Paired Sales
3) Multiple regression analysis
4) Depreciated cost
Types of adjustments in the Sales Comparison Approach are
1) Lump sum - add/subtract $
2) Cumulative - add/subtract %
3) Multiply %
Order of adjustments in the Sales Comparison Approach are
2) Market conditions (time, date of sale)
3) Location & physical characteristics
Elements of Comparison for the Sales Comparison Approach are
1) Market conditions (date of sale)
2) Similar location
3) Similar in size, age and condition
4) Similar design type
5) Similar construction type
6) Physical attributes
7) Same forces that influence value: physical, economic, governmental & social
Cost components such as the floor, roof or roofing are considered ______________ costs and are expressed as cost per sf.
The cost of producing and exact replica of a building or improvement.
The cost of producing a building or improvement using modern methods and materials having the same utility.
Comparative Unit (sf method)
The easiest, fastest and most widely used method of estimating cost.
The difference between the market value of an improvement and its cost at the time of appraisal.
One of the major advantages to the sales comparison approach is that it reflects the actions of __________ & __________.
Buyers and sellers
A unit of comparison that would be applicable to single-family residential property is the _______________.
Price per sf of gross living area or total property price
A unit of comparison that would be applicable to agricultural farmland or larger rural residential tracts would be ________________.
Price per acre
The unit of comparison that is generally used in valuing office properties is the _________________.
Price per sf of net rentable area
Price per animal unit might be the appropriate unit to use in the valuation of __________________.
Collection of data on individual properties and application of the data to estimate the value of many properties.