Depending on the type
of property to be appraised and the type of appraisal report to be delivered,
real estate appraisers employ three different techniques for property
valuation. They are the sales comparison approach or the market data approach,
the cost approach and the income approach or the income capitalization
approach.
The sales comparison
approach or the market data approach compares the property to be valued to
similar properties with similar features that have been recently sold in
similar transactions, considering all such factors that affect the valuation of
such property. The value of the property is usually the sum of the values of
all the components of the property that affect utility.
The cost approach is
based on the assumption that no prudent buyer or investor would pay more than
the cost that would be incurred to build a similar or equivalent property. The
method includes determination of the cost of the site, estimation of the cost of
improvements and making adjustments for depreciation. The depreciation can be
due to time, wear and tear, and obsolescence.
The income approach or
the income capitalization approach is usually used for estimating the market
value of properties that generate income such as office buildings, apartment
buildings, shopping centers and warehouses. The approach is based on
anticipation of income or expectation of income from the property in future.
This method considers mainly two factors. One is the market rent that can be
expected to be earned by the property and secondly, the resale value of the
property.
Although it is not
required that an appraisal process uses all the three approaches to determining
the value of a property, the most reliable appraisal would be one that uses all
the three techniques.
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Matt Moore Appraiser, Newtown amc / matt moore, Matt Moore AMC, Maverick amc / matt moore, Nationwide amc / matt moore,
Matt Moore Appraiser, Newtown amc / matt moore, Matt Moore AMC, Maverick amc / matt moore, Nationwide amc / matt moore,
