Term
| Principal of Substitution |
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Definition
| a buyer will not pay more for one parcel of land than for an equivalent parcel.....thus the greatest demand will be generated for the lowest priced site with similar utility |
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Term
| What is the preferred methodology for determining site value? |
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Definition
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Term
| Why would the sales comparison approach not be the best method to use? |
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Definition
| rural and highly dense areas |
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Term
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Definition
Procedure: estimate of the depreciated cost of the improvements is deducted from the total sale price
Applicability: when contribution is small and easy to identify and new
Limitations: must determine the value contribution of the improvements, estimated at their depreciated cost |
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Term
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Definition
Procedure: ratio of site value to property value is extracted from comparables and is applied to the sale price of the subject property
Applicability: one unit rez...few sales availible
Limitations: no conclusive value indications unless ample sales data is availible |
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Term
| The land residual technique requires that... |
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Definition
- Building value is known/estimated
- NOI is known/estimated
- Building and land cap rates can be extracted from the market
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Term
| Steps of the land residual technique |
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Definition
- What actual or hypothetical improvements represent the highest and best use of the site as though vacant
- NOI/OE estimated from market rents
- How much income is attributable to the bulding, subtract this from the NOI
- Remainder is the residual income attributable to the land, which is capatalized at a market derived land cap rate to provide an estimeat of site value
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Term
| What are the applicability and limitations of the Land Residual Technique? |
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Definition
Applicability: test feasibility of alt uses of a particular site in highest and best anaylisis, or when land sales are unavailible
Limitations: These conditions must be met
- Building Value
- NOI
- Building and land cap rates
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Term
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Definition
| amount paid for the right to use and occupy the land |
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Term
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Definition
Procedure: market derived cap rate is applied to the ground rent of the subject
Applicability: used shwn comparable rents, rates, and factors can be developed from an analysis of sales of leased land
Limitations: an adjustment to the value indication for property rights may be necessary when current rent under the existing contract does not match market rent |
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Term
| DCF analysis-Subdivision Development Analysis |
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Definition
Procedure: Direct and Indirect costs and entreprenurial incentive are deducted from an estimate of anticipated gros sales price of finished lots...net sales discounted
Applicability: when subdivision is highest and best use
Limitations: significant amounts of data |
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