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Lecture 7

16234 Lecture Notes - Lecture 7: Redlining, Small Claims Court, Subrogation

3 pages66 viewsFall 2016

Design, Architecture and Building
Course Code
Vince Mangioni

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Lecture 7
Replacement Cost and Summation Methods of Valuation
Summation / Cost Methods of Valuation
o Summation is the sum of the component parts of a property which equals total value in principle
o From the total value of a property, either component may be deducted to determine the remaining
component value
o Total value less land = added value of improvements
Use of Summation
o Determining the added value of improvements in the absence of land sales, land tax and rating
o Determining the rate of depreciation of improvements for market values
o Determining the value of special uses property
o E.g. insurance replacement valuations
Types of Improvements
1. On land (“visible”)
Paths and roads
2. To land (“not visible”)
Filling clearing
3. Fixtures
Permanently annexed to land (e.g. stove, ducted air conditioning, carpets)
4. Fittings
Removable without damage to the property (e.g. curtains, blinds)
Improvements Cont.
o Cost and value do not always equate to the same amount
o Main point of difference is depreciation
o Types of depreciation include:
Physical: normal wear and tear
Functional / Technological: Older dwellings may not compare with modern buildings /
Improved building concepts
Economic: Changes due to zoning/legislation (e.g. dwelling in industrial area)
Depreciation for Taxation Purposes
o Straight line method the original amount is depreciated by a set % each year
o Reducing balance method the most recent amount is depreciated by a set % each year
Summation / Cost Approach
o This method is used when the direct comparison method cannot be used as there is no comparable
sales evidence
o May also be used to determine the value or cost of the individual components of property such as
land and buildings
o If you now the value of the land and the sale price of the property, deduct one from the other to get
the value of the improvements
o Issue is that Cost does not always equal Value
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