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Finance 673 Real Property Valuation I Department of Finance Mays Business School Texas A&M University Value Concept

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Finance 673 Real Property Valuation I Department of Finance Mays Business School Texas A&M University Value Concepts and Definitions. Real Estate and Real Property. Real estate physical land and appurtances affixed thereto immobile and tangible natural part of land

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Presentation Transcript
slide1

Finance 673

Real Property Valuation I

Department of Finance

Mays Business School

Texas A&M University

Value Concepts and Definitions

slide2

Real Estate and Real Property

  • Real estate
    • physical land and appurtances affixed thereto
    • immobile and tangible
    • natural part of land
    • buildings and site improvements
    • all permanent building attachments (fixtures)
    • attachments above and below ground
slide3

Real Estate and Real Property (continued)

  • Real property
    • interests, benefits and rights inherent in the ownership of real estate
    • bundle of rights
    • fee simple
    • leased fee
    • leasehold
    • equity
    • mortgage
slide4

Personal Property, Fixtures and Trade Fixtures

  • Personal property
    • Movable items of property not permanently affixed to the real estate
    • Furniture, fixtures and equipment (FF&E)
    • Make notation if personal proeprty to be valued with real property
slide5

Personal Property, Fixtures and Trade Fixtures (continued)

  • Fixtures
    • Becomes part of the real estate
    • Criteria
      • Manner in which it is affixed (can it be removed without damaging property?)
      • Character of the item
      • Intention of party who attached them (real the lease)
slide6

Personal Property, Fixtures and Trade Fixtures (continued)

  • Trade fixtures
    • Personal property
    • To be removed by tenant when lease expires
    • Chattel
slide7

Price, Cost and Value

  • Price
    • Amount a particular purchaser agrees to pay and a particular seller agrees to accept under circumstances surrounding the transaction
  • Real estate market
    • created by interaction of individuals who exchange property rights for other assets (money)
slide8

Price, Cost and Value (continued)

  • Cost
    • Production costs
    • Construction cost
    • Development cost
      • Acquisition costs (land)
      • Horizontal construction
      • Vertical construction
      • Entrepreneurial incentive (compensation for time and risk involved with development)
slide9

Price, Cost and Value (continued)

  • Value
    • Anticipation of benefits to be received in the future
    • Value at a particular point in time
    • Types of value
      • Market value
      • Investment value
      • Use value
      • Assessed value
slide10

Price, Cost and Value (continued)

  • Market value
    • Definition should be determined by intended use (i.e. for IRS, for mortgage loan)
    • Definitions
      • Buyer and seller typically motivated
      • Knowledgeable, acting in their best interest
      • Reasonable exposure time
      • Payment in cash of equivalent terms
      • Unaffected by special financing or sales concessions
slide11

Price, Cost and Value (continued)

  • Use Value
    • Value a specific property has for a specific use
    • Value the use creates for the enterprise of which it is a part
    • Example - manufacturing plant designed around a particular assembly process
    • Limited-market/special purpose properties
      • Unique designs, layouts
      • Market may be so limited that cannot estimate market value, then estimate use value
slide12

Price, Cost and Value (continued)

  • Investment value
    • Value of a property to a particular investor based on their investment requirements
    • Value to individual, not necessarily value in marketplace
    • Specific investment criteria must be known
    • If investor's requirements are typical of market then invesment value and market value will be the same
slide13

Price, Cost and Value (continued)

  • Going-concern value
    • Includes the incremental value associated with a business concern that is distinct from value of real property
    • Sometimes cannot separate real property value from business enterprise value
    • Going concern value = business enterprise value (intangible) + real property value (tangible) + personal property value (tangible)
    • Examples: convenience stores, gas stations
slide14

Price, Cost and Value (continued)

  • Assessed value
    • Value of property according to tax rolls
    • Ad valorem taxation
    • Relationship to market value
      • Assessment ratios