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Unformatted text preview: 1 Managerial Economics (ARE) 144 University of California, Davis Instructor: John H. Constantine KEY —Handout: Chapter 7, Single Family Housing: Pricing, Investment, and Tax Considerations (1) Why is the income approach to value often difficult to use on a single family residential appraisal? Typically, the income approach is difficult to use because the sale of single family, rental properties are rare in the area. (2) What are the differences between the cost and sales comparison approaches to appraising property? When using the market approach, the appraiser estimates the value of a property by comparing the selling prices of properties similar to, and near, the property being appraised. Because no two properties are exactly alike, the values of similar properties are adjusted by the appraiser for dissimilarities. When using the cost approach, the appraiser establishes a value for the site on which the improvement is located, then determines the cost of reproducing the improvements and adds the two. After the costs of the improvement and land value are added, the appraiser deducts an amount for any depreciation that improvements have suffered since they were constructed. (3) What are the capital gains rules as applied to residential property owners? For sales of personal residence a homeowner may exclude from income $250,000 of gain, and a married couple may exclude up to $500,000 of gain realized on the sale. Individual must have owned and used the home as a principal residence for at least two of the five years prior to the sale (the two years do not have to be consecutive). Exclusion applies to only one sale every two years. (4) List four important drivers of housing demand and price appreciation. Population growth, income, households, price of rental housing (5) What are public goods? How may they be reflected in house prices? Public goods include education, police, fire, health and other services provided by the local public sector. To the extent the quality/value of these services provided to homeowners exceed the cost (taxes, fees), paid, a net benefit is thought to exist. This net benefit is generally reflected in land/property prices. (6) When considering an investment in “distressed” properties, what are the most important areas of research that should be considered? (i) Market research to determine an expected future price when the investor plans to sell. (ii) Title search to determine any defects in the title and/or liens as well as the cost to clear the title. (7) What is the theoretical basis for the direct sales comparison approach to the market valuation? The direct sales comparison approach to the market valuation relies on value judgments made by willing buyers and sellers. Therefore, this method uses market-driven information. The sales comparison approach involves comparing a subject property with recently sold comparable properties. 2 (8) What main difficulty would you foresee in attempting to estimate the value of a 30-year old...
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- Spring '10
- subject property, sales comparison approach