REAL 1820 Lecture Notes - Lecture 14: Income Approach, Savings Account, Capitalization Rate
9 Apr 2016
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Document Summary
The cost to create the property is an indication of its value. So the value of a property can be estimated by summing the land value and the structure value. Land cost includes sit acquisition and preparation costs. Costs of new structure is the cost to build a new structure with the same functions. Depreciation: decrease in structure value due to oldness . Value of the subject property = land cost + structure cost. = land cost + (cost of new structure depreciation) Step 2: estimate the cost of new structure. Land cost includes site acquisition and preparation costs. Cost of new structure includes all hard and soft costs necessary to build a new property. Depreciation = cost of new structure * effective age / total economic life. Effective age: an appraiser estimate of the physical and functional conditions of building in year.
