<abstract xmlns="http://www.w3.org/1999/xhtml"><p>To develop ideas on building element valuation contained in the first article on the subject published in REMV, we propose an elaboration of the approach accounting for <italic>ad valorem</italic> expenses incidental to property management, such as land taxes, income/capital gains tax, and insurance premium costs; all such costs, being of an <italic>ad valorem</italic> nature in the first instance, cause circularity in the logic of the model, which, however, is not intractable under the proposed approach. The resulting formulas for carrying out practical estimation of building rental multipliers and, in consequence, of building values, turn out to be somewhat modified, and we demonstrate the sensitivity of the developed approach to the impact of these ad valorem factors. On the other hand, it is demonstrated that (accounting for) building depreciation charges, which should seemingly be included among the considered ad valorem factors, cancel out and do not have any impact on the resulting estimates. However, treating the depreciation of buildings in quantifiable economic terms as a reduction in derivable operating benefits over time (instead of mere physical indications, such as age), we also demonstrate that the approach has implications for estimating the economic service lives of buildings and can be practical when used in conjunction with the market-related approach to valuation – from which the requisite model inputs can be extracted as shown in the final part of the paper.</p></abstract>

To develop ideas on building element valuation contained in the first article on the subject published in REMV, we propose an elaboration of the approach accounting for ad valorem expenses incidental to property management, such as land taxes, income/capital gains tax, and insurance premium costs; all such costs, being of an ad valorem nature in the first instance, cause circularity in the logic of the model, which, however, is not intractable under the proposed approach. The resulting formulas for carrying out practical estimation of building rental multipliers and, in consequence, of building values, turn out to be somewhat modified, and we demonstrate the sensitivity of the developed approach to the impact of these ad valorem factors. On the other hand, it is demonstrated that (accounting for) building depreciation charges, which should seemingly be included among the considered ad valorem factors, cancel out and do not have any impact on the resulting estimates. However, treating the depreciation of buildings in quantifiable economic terms as a reduction in derivable operating benefits over time (instead of mere physical indications, such as age), we also demonstrate that the approach has implications for estimating the economic service lives of buildings and can be practical when used in conjunction with the market-related approach to valuation – from which the requisite model inputs can be extracted as shown in the final part of the paper.

A Modified Model to Estimate Building Rental Multipiers Accounting for Advalorem Operating Expenses

Central Economics and Mathematics Institute (CEMI), Russia Academy of Science (RAS)

Real Estate Management and Valuation

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

To develop ideas on building element valuation contained in the first article on the subject published in REMV, we propose an elaboration of the approach...

A Modified Model to Estimate Building Rental Multipiers Accounting for Advalorem Operating Expenses

Published Online: Oct 08, 2016

Page range: 16 - 26

DOI: https://doi.org/10.1515/remav-2016-0018

Keywords
market value, valuation, buildings, income, rental multiplier, land, taxes, ad valorem expenditures, discounting

© 2016 S.A. Smolyak, published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

A Modified Model to Estimate Building Rental Multipiers Accounting for Advalorem Operating Expenses

Published Online: Oct 08, 2016

Page range: 16 - 26

DOI: https://doi.org/10.1515/remav-2016-0018

Keywordsmarket value, valuation, buildings, income, rental multiplier, land, taxes, ad valorem expenditures, discounting

© 2016 S.A. Smolyak, published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
market value, valuation, buildings, income, rental multiplier, land, taxes, ad valorem expenditures, discounting