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The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 Chapter 14 The Cost Approach

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Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 2 Relation to Appraisal Principles Substitution Supply and Demand Contribution Highest and Best Use Stabilization

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Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 3 Applicability and Limitations Land Value Reproduction and Replacement Cost Estimates

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Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 4 Figure 14.1 - Cost Approach Procedure (one of many possibilities)

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Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 5 Cost Estimates Direct Costs Usually in the builder’s contract to build Indirect Costs Costs outside the building contract but still part of the cost of construction

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Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 6 Entrepreneurial Incentive Entrepreneurial Profit Estimating Entrepreneurial Profit and Incentive As a dollar amount As a percent of Land cost Land plus building cost Land plus building cost, plus soft costs

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Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 7 Depreciation Physical Functional External Physical Deterioration Caused by wear or tear or the passage of time Functional Obsolescence Usually because the property no longer conforms to a market requirement or is not in compliance with highest and best use External Obsolescence Caused by factors outside the property

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Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 14 8 Problems Suggested solutions begin on page 365.

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