Uniform Standards of Professional Appraisal
1. Define the problem
2. Selection and collection of data
3. Highest and best use
4. Estimate the value by three methods (Sales comparison, income, cost approach)
5. Reconcile "weight" the resulting values
6. Prepare appraisal report
Cost approach
Estimated replacement/reproduction cost of improvements- estimated accrued depreciation = Depreciated cost of building improvements + estimate value of site =indicated value of cost approach
Quantity survey
theoretically can "price every nail
Indexed lease
Rent tied to an inflation index
Percentage lease
rent includes percentage of tenant's sales
Straight line method to quantify CAPX
for a specific expenditure "n" years away, an amount equal to the needed CAPX divided by n
Sinking fund method to quantify CAPX
an amount, invested annually that compounds to the needed CAPX expenditures in a future year(s)
actual expenditures to quantify CAPX
the actual amount expected in each year of the expected holding period (can only be done in DCF, not cap rate models)
Problems with Cap Rate Method
Ignores "atypical" out-year cash flows, incomplete data on comparable sales, differing prices between institutional, private, and foreign investors
Highest and best use
The use which is: Legally permissible, physically possible, financially feasible, most profitable (yields highest residual value to the land)
problems with cap rate method
ignores atypical out year cash flows, incomplete data on comparable sales, differing prices w/ different investors