About the Profits of an Entrepreneur in the Cost Approach

Sergey Viktorovich Gribovsky

doi:doi:10.11648/j.eco.20190802.12

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About the Profits of an Entrepreneur in the Cost Approach

Sergey Viktorovich Gribovsky

Published in Economics (Volume 8, Issue 2)

Received: 18 March 2019 Accepted: 22 April 2019 Published: 15 May 2019

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Abstract

The article is devoted to one of the debatable problems of the theory and practice of valuation - the calculating of the profit of an entrepreneur in the cost approach to real estate valuation. Discusses the interpretation of the entrepreneur profit as a fair reward for the investor for the risk of investment in the creation of the property and its relationship with the entrepreneur incentive that is the driving force of the development process. The shortcomings inherent in the cost approach are analyzed: the assumption of the instant creation of land improvements and the impossibility of taking into account the risks of investing in the process of calculating their value. The proposed formula for calculating the profit of the entrepreneur for objects with different levels of risk, amount of funding and construction time, allowing to level these shortcomings.

Published in	Economics (Volume 8, Issue 2)
DOI	10.11648/j.eco.20190802.12
Page(s)	49-54
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Real Estate, Land, Improvements, Costs, Capital, Valuation, Entrepreneur, Developer, Profit, Incentive, Cost Approach, Cash Flow, Discounting, Imputed Costs, Unrecovered Investments

References

[1]	Korostelev Sergey P. “On the profits of an entrepreneur in the cost approach”. Moscow University of Land Management, Russia, Moscow. URL http://www.labrate.ru/articles/korostelev_pp_and_cost-approach-2009.pdf
[2]	Yaskevich Evgeny E. Handbook of calculation data for assessment and consulting. Moscow Institute of Civil Engineering, Russia, Moscow: LLC "Scientific and Practical Center of Professional Appraisal", 2017.
[3]	Kozyr Yuru V. Elements of valuation business. Moscow Institute of Physics and Technology. Russia, Moscow: Publishing House Option LLC, 2014.
[4]	Fomenko Alexander N. "The method of updating the entrepreneur’s previously determined profit in real estate valuation". Moscow University "Synergy", Moscow // Evaluation questions, №4, (2007)
[5]	Ozero Evgeny S. Economic evaluation of civil rights objects. St.-Petersburg University of Technology. Department of Economics and Real Estate Management. Russia. St.-Petersburg: Kopi-R Group LLC, 2012.
[6]	Gribovsky Sergey V. Evaluation of income real estate: Textbook. Russia. St.-Petersburg: Peter, 2001.
[7]	Gribovsky Sergey V. Property valuation: Textbook, Russia. Moscow: Maroseyka, 2017.
[8]	Korostelev Sergey P. “Other methodology and method of real estate appraisal in accordance with the interpretation of FSO-7”. Moscow University of Land Management. Russia. Moscow. URL http://www.ocenchik.ru/docsf/2049-metod-ocenki-nedvizhimosti-traktovkoy-fso7.html. 2014 year.
[9]	The appraisal of real estate. - Fourteenth edition. Appraisal Institute • 200 W. Madison • Suite 1500 • Chicago, IL 60606 • 2013. (www.appraisalinstitute.org).
[10]	Eckert Joseph K. Organization of assessment and taxation of non-movables. Volume I. Academy evaluation. Moscow: STAR INTER, 1997.
[11]	Chakalyan Karine G. «Business valuation: the essence of the main approaches, their advantages and disadvantages» // Young Scientist. Russia. Moscow, (2016), No 28, 590-592.
[12]	Vershinina Olga V. Theoretical bases of the expenses approach in the estimation of business cost Department of Finance and Banking, Moscow New University, Russia, Moscow, 2015.
[13]	Friedman Jack, Ordway Nicolas. Analysis and evaluation of income-generating real estate. Russia, Moscow, Delo, 1998.
[14]	Perevozchikov Alexander G. The General Theory of Credits and Its Applications to the Business Assessment: Study Guide. Russia, Moscow: Moscow Academician of the Academy of Natural Sciences. 2005.
[15]	Federal Appraisal Standards "Property valuation (FSO 7)". APPROVED by order of the Ministry of Economic Development of Russia No. 611 dated September 25, 2014.

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APA Style

Sergey Viktorovich Gribovsky. (2019). About the Profits of an Entrepreneur in the Cost Approach. Economics, 8(2), 49-54. https://doi.org/10.11648/j.eco.20190802.12

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ACS Style

Sergey Viktorovich Gribovsky. About the Profits of an Entrepreneur in the Cost Approach. Economics. 2019, 8(2), 49-54. doi: 10.11648/j.eco.20190802.12

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AMA Style

Sergey Viktorovich Gribovsky. About the Profits of an Entrepreneur in the Cost Approach. Economics. 2019;8(2):49-54. doi: 10.11648/j.eco.20190802.12

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@article{10.11648/j.eco.20190802.12,
  author = {Sergey Viktorovich Gribovsky},
  title = {About the Profits of an Entrepreneur in the Cost Approach},
  journal = {Economics},
  volume = {8},
  number = {2},
  pages = {49-54},
  doi = {10.11648/j.eco.20190802.12},
  url = {https://doi.org/10.11648/j.eco.20190802.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20190802.12},
  abstract = {The article is devoted to one of the debatable problems of the theory and practice of valuation - the calculating of the profit of an entrepreneur in the cost approach to real estate valuation. Discusses the interpretation of the entrepreneur profit as a fair reward for the investor for the risk of investment in the creation of the property and its relationship with the entrepreneur incentive that is the driving force of the development process. The shortcomings inherent in the cost approach are analyzed: the assumption of the instant creation of land improvements and the impossibility of taking into account the risks of investing in the process of calculating their value. The proposed formula for calculating the profit of the entrepreneur for objects with different levels of risk, amount of funding and construction time, allowing to level these shortcomings.},
 year = {2019}
}

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TY  - JOUR
T1  - About the Profits of an Entrepreneur in the Cost Approach
AU  - Sergey Viktorovich Gribovsky
Y1  - 2019/05/15
PY  - 2019
N1  - https://doi.org/10.11648/j.eco.20190802.12
DO  - 10.11648/j.eco.20190802.12
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 49
EP  - 54
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20190802.12
AB  - The article is devoted to one of the debatable problems of the theory and practice of valuation - the calculating of the profit of an entrepreneur in the cost approach to real estate valuation. Discusses the interpretation of the entrepreneur profit as a fair reward for the investor for the risk of investment in the creation of the property and its relationship with the entrepreneur incentive that is the driving force of the development process. The shortcomings inherent in the cost approach are analyzed: the assumption of the instant creation of land improvements and the impossibility of taking into account the risks of investing in the process of calculating their value. The proposed formula for calculating the profit of the entrepreneur for objects with different levels of risk, amount of funding and construction time, allowing to level these shortcomings.
VL  - 8
IS  - 2
ER  -

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Author Information

Sergey Viktorovich Gribovsky

Higher School of Economics, St. Petersburg State University of Economics, St. Petersburg, Russia

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APA Style

Sergey Viktorovich Gribovsky. (2019). About the Profits of an Entrepreneur in the Cost Approach. Economics, 8(2), 49-54. https://doi.org/10.11648/j.eco.20190802.12

Copy | Download

ACS Style

Sergey Viktorovich Gribovsky. About the Profits of an Entrepreneur in the Cost Approach. Economics. 2019, 8(2), 49-54. doi: 10.11648/j.eco.20190802.12

Copy | Download

AMA Style

Sergey Viktorovich Gribovsky. About the Profits of an Entrepreneur in the Cost Approach. Economics. 2019;8(2):49-54. doi: 10.11648/j.eco.20190802.12

Copy | Download

@article{10.11648/j.eco.20190802.12,
  author = {Sergey Viktorovich Gribovsky},
  title = {About the Profits of an Entrepreneur in the Cost Approach},
  journal = {Economics},
  volume = {8},
  number = {2},
  pages = {49-54},
  doi = {10.11648/j.eco.20190802.12},
  url = {https://doi.org/10.11648/j.eco.20190802.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20190802.12},
  abstract = {The article is devoted to one of the debatable problems of the theory and practice of valuation - the calculating of the profit of an entrepreneur in the cost approach to real estate valuation. Discusses the interpretation of the entrepreneur profit as a fair reward for the investor for the risk of investment in the creation of the property and its relationship with the entrepreneur incentive that is the driving force of the development process. The shortcomings inherent in the cost approach are analyzed: the assumption of the instant creation of land improvements and the impossibility of taking into account the risks of investing in the process of calculating their value. The proposed formula for calculating the profit of the entrepreneur for objects with different levels of risk, amount of funding and construction time, allowing to level these shortcomings.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - About the Profits of an Entrepreneur in the Cost Approach
AU  - Sergey Viktorovich Gribovsky
Y1  - 2019/05/15
PY  - 2019
N1  - https://doi.org/10.11648/j.eco.20190802.12
DO  - 10.11648/j.eco.20190802.12
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 49
EP  - 54
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20190802.12
AB  - The article is devoted to one of the debatable problems of the theory and practice of valuation - the calculating of the profit of an entrepreneur in the cost approach to real estate valuation. Discusses the interpretation of the entrepreneur profit as a fair reward for the investor for the risk of investment in the creation of the property and its relationship with the entrepreneur incentive that is the driving force of the development process. The shortcomings inherent in the cost approach are analyzed: the assumption of the instant creation of land improvements and the impossibility of taking into account the risks of investing in the process of calculating their value. The proposed formula for calculating the profit of the entrepreneur for objects with different levels of risk, amount of funding and construction time, allowing to level these shortcomings.
VL  - 8
IS  - 2
ER  -

Copy | Download