REE-4103 Chapter Notes - Chapter 21: Capitalization Rate, List Of Major League Baseball Career Total Bases Leaders, Earnings Before Interest And Taxes
2 May 2018
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- Relation to Appraisal Principles
o Anticipation and Change
▪ All income capitalization methods, techniques, and procedures forecast
anticipated future benefits and estimate their present value
o Supply and Demand
▪ If the demand for a particular type of space exceeds the existing supply,
owners may be able to increase rents
▪ To estimate rates of return and forecast future benefits, appraisers
consider the demand for the particular type of property and how the
demand relates to supply
- Applicability and Limitations
o Any property that has the potential to generate income can be valued using the
income capitalization approach
o The value indication produced by the income capitalization approach might be
given greater weight than that of the other approaches in the final reconciliation
of value indications
o Income capitalization techniques include direct capitalization and yield
capitalization
- Definitions
o Leases
▪ A written document in which the rights to use and occupy land or
structures are transferred by the owner to another for a specific period of
time in return for a specified rent
▪ Flat Rental Lease
• Specifies a level of rent that continues throughout the duration of
the lease
▪ Variable Rent Lease
• May specify a periodic percentage change or the change may be
tied into a specific index
▪ Step Up or Step Down Rental Lease
• Provide for specified changes in the amount of rent at one or
more points during the lease term
• Step up leases can be advantageous to a tenant establishing a
business in a new location
▪ Lease with an Annual Increase
• Increases the rent annually by a dollar amount specified in the
lease
▪ Revaluation Lease
• Provide for periodic rent adjustments based on revaluation of the
rental rate under the prevailing market conditions
▪ Percentage Lease
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