real estate finance - full book (500 pgs)

Sales prices are more sensitive to changes in zoning

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Unformatted text preview: ed by determining reproduction or replacement cost, less depreciation, plus the value of the land as if it were vacant. The selection of a method of cost estimation depends upon the type of depreciation analysis to be made. The more detailed methods of depreciation analysis require more detailed estimates of cost. Several of the most widely used methods are presented below in increasing order of complexity and costliness. Comparative Unit Method – In this method, cost estimates are made by grouping all the components together on a Unit basis, such as cost per square foot of building area or cost per cubic foot of building volume. This is the easiest method of cost estimation, and widely used in practice. However, it is the least accurate method, because costs are averaged out over the whole building. Because incurable physical deterioration can be estimated only on a lump–sum basis when this method is used, it cannot be used where a breakdown of the accrued depreciation estimate is required. Unit–in–Place Method –This method involves estimating the installed unit cost of materials or component sections of the structure. It accounts for the cost of both materials and the labor to put them in place, on a per unit basis. This method can be applied using the segregated cost data found in most cost manuals, with appropriate adjustments for time and location. An advantage of this method is that it simulates the procedures used by builders in preparing estimates, and is readily understandable, accurate, and widely used and accepted. However, it is detailed and time consuming. Quantity Survey Method – This is the most accurate method of cost estimation. It is also the most detailed, costly, and time–consuming, and should be attempted only by an expert. Due to the complexity of the method, its use is rarely justified in residential appraisal. Dynasty School (www.dynastySchool.com) 12-7 REAL ESTATE FINANCE INCOME APPROACH In the income approach, value is based on the rental...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.

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