Chapter 7: Pricing, Investment, and Tax Considerations McGraw-Hill / I rwin. "Subject" is the property being appraised "comparables" are recently sold similar properties Estimate value of subject by adjusting the sales price of the comparables.
Chapter 7: Pricing, Investment, and Tax Considerations McGraw-Hill / I rwin. "Subject" is the property being appraised "comparables" are recently sold similar properties Estimate value of subject by adjusting the sales price of the comparables.
Chapter 7: Pricing, Investment, and Tax Considerations McGraw-Hill / I rwin. "Subject" is the property being appraised "comparables" are recently sold similar properties Estimate value of subject by adjusting the sales price of the comparables.
Investment, and Tax Considerations McGraw-Hill/I rwin Copyright 2011 by the McGraw-Hill Companies, I nc. All rights reserved. 7-2 Homeownership Homeownership is not just shelter. It can also be an investment vehicle. Price Influences Income and Employment Interest Rates Renting vs. Owning Economic Other Issues 7-3 Tax Considerations Interest Deduction Qualified residence Maximum deduction Points Real Estate Taxes Capital Gains Exclusion $250,000 and $500,000 Primary residence rules and occurrence rules 7-4 Regional Dynamics Speculative Housing Bubbles Regional Economic Drivers Growth or Decline? Regional Comparative Advantage Natural Advantages Employee Characteristics Access to Transportation Quality of Life 7-5 Regional Dynamics Base & Service Industries Location Quotient LQ>1 is a base industry LQ<1 is a service industry Employment Multiplier 7-6 Housing Supply Housing Starts Existing Home Sales Local Supply Influences Interest Rates Zoning Building Codes Land Terrain 7-7 Housing Supply Neighborhood Influences Public goods School quality Capitalization Effect Public services provided relative to taxes paid Optimal City Size 7-8 Appraisal: Qualifying the Property Establish Market Value Most probable price under competitive market conditions Price, Cost of Construction, and Market Value What are market conditions? What are submarket conditions? What is the neighborhood? 7-9 Sales Comparison (Market) Approach Subject is the property being appraised Comparables are recently sold similar properties Estimate value of subject by adjusting the sales price of the comparables for any differences Subject Value Estimate = Comparable Sales Price Feature Differences 7-10 Cost Approach Subject Value Estimate = Cost New Depreciation + Land Value Physical depreciation, functional obsolescence, external obsolescence Depreciation is often estimated straight- line 7-11 Income Approach Gross Rent Multiplier (GRM) Subject Value Estimate = GRM x Rental Income 7-12 Appraisal: Qualifying the Property The sales comparison approach is most effective for active residential markets The cost approach is most effective for special use property or newer homes The income approach is most effective for cash flow generating property 7-13 Appraisal: Qualifying the Property Example 7-1: Consider the following property: 2,000 Sq Foot; $100 per square foot new 10% of total effective 100 year life span is depreciation estimate Land value is estimated at $30,000 7-14 Appraisal: Qualifying the Property Cost New = 2,000 x $100 = $200,000 Depreciation Estimate = $200,000 x .10 = $20,000 Site Value = $30,000 Subject Value Estimate = $200,000 - $20,000 + $30,000 = $210,000 7-15 Appraisal: Additional Techniques Example 7-2 GRM = 4, derived from the market Subject potential gross income (PGI) is $200,000 per year Subject Value Estimate = 4 x $200,000 = $800,000
7-16 Distressed Property Below Market Value Property Reasons: Financial Legal Personal 7-17 Distressed Property Financial Framework Acquisition Phase Holding Period Phase Disposition Phase Profitability 7-18 Distressed Property Acquisition Phase Information sources for distressed property Legal Research: Title Quality Auction Process Lenders at auctions Equitable Rights Market research Inspections 7-19 Distressed Property Holding Period Phase Financial Issues Renovation cost Interest or other carrying costs Taxes and insurance Disposition Phase Selling Renting Occupying