Which of the following expenses is not included by the appraiser when estimating value using the income method?

Your county Assessor and their appraisers use one or more of the three approaches to value to produce appraisals that are used by the Assessor to estimate fair market value for property tax purposes. The Cost Approach estimates value based on the typical cost of materials and labor necessary to build a structure of similar size and quality in that location while accounting for depreciation due to age and condition. The Sales Comparison Approach estimates value based upon the price, in the local market, necessary to acquire a property of similar location, quality, size, age, and condition. The Income Approach estimates value based upon typical market income of a similar property.

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Direct comparison approach
Income approach
Cost approach
Related Links
Which of the following categories of expenses is not included as an operating expense?
What is cost estimating method most commonly used by appraisers?
What are the three methods of appraisal?
Which of the following would not be placed under operating expenses on the operating statement?

Cost Approach to Value

In the cost approach to value, the cost to acquire the land plus the cost of the improvements minus any accrued depreciation equals value. Depreciation is a loss in value from any cause, and can take the form of physical deterioration, functional obsolescence, or economic obsolescence. The underlying premise of the cost approach is that ‘a potential user of real estate won't, or shouldn't, pay more for a property than it would cost to build an equivalent.’ (PRINCIPLE OF SUBSTITUTION)

Sales Comparison Approach to Value

The sales comparison approach is directly rooted in the real estate market. The value of the subject property is equal to the sales prices of comparable properties plus or minus any adjustments. The sales comparison approach compares a piece of property to other properties with similar characteristics that have been sold recently. The sales comparison approach takes into account the affect that individual features have on the overall property value, meaning that the total value of the property is a sum of the values of all of its features.

Income Approach to Value

The income approach quantifies the present worth of future benefits associated with ownership of the real estate asset. The income approach comes in two different forms: net income approach and gross income approach. Net income is what is left over after vacancy and collection loss and allowable expenses have been subtracted from the potential gross income. The net income is divided by a capitalization rate (the investor’s desired rate of return) for an estimate of value. In the gross income approach, the income is multiplied by a factor in order to arrive at the value. The net income approach is typically seen on larger commercial occupancies like office buildings, retail, apartments and hotels / motels. The gross income approach is typically seen on income producing residential properties.

We use one of three approaches to establish an assessed value (also known as "Current Value Assessment") for properties:

direct comparison approach
income approach
cost approach

The approach we used depends on your property type and how frequently similar types of properties are bought and sold on the open market.

Direct comparison approach

This is the most commonly known valuation approach. We analyze recent sales of comparable properties to determine the value of your property. In considering any sales evidence, we ensure that the property sold has a similar or identical use as the property to be valued.

The direct comparison approach is typically used for the following types of properties:

residential
condominiums
vacant land

Income approach

An income-producing property’s ability to earn revenue is directly tied to its current value. When using the income approach, we carry out a detailed analysis of your property's income and expenses and then compare it to similar properties to determine how much income a property could be expected to generate.

We then analyze the relationships between incomes and sale prices to calculate the capitalization rate (cap rate) for the property by dividing the income by the sale price.

The income approach is typically used for the following types of properties:

hospitality properties
industrial malls
multi-residential properties
office buildings
shopping centres

Cost approach

When a property type is unique and rarely sold on the market, we can’t rely on either the comparison or income approaches to determine its current value. In these cases, we estimate your property’s current value with a three-step process:

We calculate the current cost of replacing buildings, structures or other taxable components on the land.
We apply a deduction for depreciation due to age, functional or economic conditions that could impact the value of the property.
We determine the value of the land and add it to the calculations to produce an overall valuation.

The cost approach is typically used for the following types of properties:

general-purpose industrial properties
grain elevators
gravel pits
large and special purpose properties
warehousing

Which of the following categories of expenses is not included as an operating expense?

The most common examples of non-operating expenses are interest, taxes, depreciation and amortization. Less common non-operating expenses can also include inventory write-offs, restructuring costs and even settlements for lawsuits.

What is cost estimating method most commonly used by appraisers?

The Age-life Method– This method is the simplest and most common method of estimating depreciation. The appraiser estimates the total age, effective age, and remaining life of the improvements. Effective age is a function of the property's current condition as well as its utility and location in the current market.

What are the three methods of appraisal?

In historical terms, however, appraisal practice has recognized that there are three main methods of appraisal, namely the Comparison Approach, the Income Approach, and the Cost Approach.

Which of the following would not be placed under operating expenses on the operating statement?

Costs excluded from operating expenses include mortgage payments, capital expenses, and depreciation expenses.