Assessment of the property, the method of costing

07.12.2009 16:26
The essence of the method of valuation of property on the basis of costing, boils down to is that you can either build (invest) new real estate or buy an existing one. Therefore, the replacement cost, usually sets the upper limit of the price you might pay for an existing property.

Property valuation, costing

If you can build a new property for 210 thousand dollars (including the cost of the relevant land), then why would you pay 250 thousand dollars for an old property, located a little further down the same street? On the other hand, even if it were possible to buy the old property at a price of 210 thousand dollars, why do you need the old to the new price?

Calculate the cost of new home construction

First of all, calculate the cost of building houses, using as the unit cost per square meter. Based on the cost, which is typical of the area, and for the type of property you want to evaluate. If you want to find out the cost per square meter, talk with local building contractors, or use the printed guides for the cost of construction. These guidelines are certainly there in the library (see "References"). Access to these guidelines is also possible via the Internet. Since the cost of replacement directly correlated with the size and quality of buildings, the exact cost estimate is not possible without precise measurement of the size and quality of the building. Note also that the cost of improvements and all sorts of "bloat" (chandelier, high-quality carpet from wall to wall, modern appliances and plumbing, sauna, swimming pool, garage, carport "patio, porch, porch etc.) must be calculated separately and added to the cost of basic construction.

Deduct depreciation

Once you calculate the cost of building you are interested in real estate at current prices, you must subtract the amount takes into account three types of wear:
• physical;
• functional;
• External

Physical deterioration of the building

When the building is aging, it becomes less desirable (and valuable) than new, because of its physical depreciation (amortization). Over time, as well as under the influence of adverse weather conditions and improper use of the building is gradually coming into disrepair. The worn floors, obluschivshayasya paint, chipped plaster, rust plumbing and leaking roofs reduce property values ??in comparison with the new structure. Your task is to understand what kind of part of its original cost estimated lost your property.
If the building is in fairly good condition, the degree of wear can be estimated at 10-20%, if the physical condition of the building is poor, then the degree of wear can be estimated at 50% or more.
Instead of using percentages of depreciation, you can specify the value of each type of repair work that will be required to transfer the relevant properties in a physical state that is close to ideal.
Unfortunately, the last option (an indication of costs for each type of repair work) is less effective than the use of percentages. Indeed, from an economic point of view, a complete upgrade of the roof, which for eight years, the carpet, which was four years old, or a stove that was used for nine years, it is not advisable.
Whatever the case, you must calculate one way or another degree of physical deterioration of property you are interested in comparing the new building of the same size and quality, and have approximately the same characteristics.

Functional deterioration of the building

Next, you need to estimate (in monetary terms) the degree of functional deterioration. In contrast to physical deterioration, which occurs naturally as a result of the use (and misuse) of real estate, functional wear leads to loss of value due to the presence of unwanted real estate properties such as old-fashioned dark wood paneling, an unsuccessful planning of the rooms, low-power system wiring, poorly chosen color scheme and architectural design.
Real estate can be a little worn out from the physical point of view, but can hopelessly out of date from a functional point of view, since the functional characteristics of this property is no longer attract potential buyers or tenants.

External wear of the building

Outer wear (or wear-defined environment) property holds in cases where the property can not be used optimally because of the peculiarities of its location.
Suppose you meet a well-groomed, which is in excellent condition residential house located in a dense ring of offices and commercial establishments. Apparently, the zoning of the site has undergone changes. With great confidence we can say that this house is virtually adds nothing to the cost of land on which it is built. If someone buys this and a house, it is likely only to immediately demolish it and build in its place another store or office (or if not, his attempt to rebuild and refurbish a shop or office).
For housing, which looks like a black sheep in the background of their environment, factors external wear (ie wear and tear determined by the environment) play a crucial role, dramatically reducing its cost.
The outer wear is sometimes close to 100%. With or without a home site sold for almost the same price. This principle applies in the case where the neighborhood are becoming more sophisticated and rich look, and quite well-maintained homes a total area of ??1200 square meters. feet with three bedrooms and two bathrooms demolished and in their place erect office buildings, restaurants or hotels. These relatively small houses disparagingly referred to as "a pile of debris," notwithstanding the fact that the actions of their owners could serve as a model of careful and even a love relationship in real estate.

Value of the land

To assess the value of the land, look for similar (empty, without buildings) of land that were recently sold, or have recently sold land with piles of debris. " Comparing the land, take into account such factors as the size of the site frontage (frontage), neighborhood (ie, how nice view opens from the land), topographic characteristics, the restrictions imposed by local laws, rules of fragmentation and Other features that may affect the value of the land.

The final stage - the market value of real estate

Once you pass the above steps (ie, calculate the cost of construction of real estate as if it had been rebuilt, subtract depreciation and add value to the site), you define the market value of the properties concerned. Since the cost of construction, degree of wear and the cost of the relevant land to pinpoint possible, an approach based on costing, will not allow you to get an exact answer, ie determine the true market value of real estate you are interested. But you will get at least some "starting point" that you might need when using an approach based on the use of data on comparable sales, and an approach based on the use of data on income from rental real estate.

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