Scribd
Upload
91 views

Appraisal Method

Real estate valuations consider the value of a property based on its future benefits over many years. Valuations take into account utility, demand, transferability, and scarcity. There are three main appraisal methods: 1) the cost approach estimates value based on replacement costs minus depreciation, 2) the income approach considers relationship between net income and investor return, used for income properties, and 3) the gross income multiplier method relates expected rental income to sales price, used for properties that could be rented.

Uploaded by

Eduard Abatayo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
91 views

Appraisal Method

Real estate valuations consider the value of a property based on its future benefits over many years. Valuations take into account utility, demand, transferability, and scarcity. There are three main appraisal methods: 1) the cost approach estimates value based on replacement costs minus depreciation, 2) the income approach considers relationship between net income and investor return, used for income properties, and 3) the gross income multiplier method relates expected rental income to sales price, used for properties that could be rented.

Uploaded by

Eduard Abatayo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 10

Real Estate Valuations

Introduction

Estimating the value of a real


estate is a key element to real
estate financing, listing for
sale, property insurance,
investment analysis, and
taxation. For most instances,
figuring the asking price of a
property is the typical
application of a real estate
valuation. However, the
methods and basic concepts
remain the same for any
application.
Value

Value is defined as the present worth of future


benefits from owning the real estate property.
Most goods are consumed quickly, but the
benefit of owning real estate is realized over
many years. Therefore, a valuation takes into
consideration the social and economic trends,
environmental conditions, and government
regulations.
Value

The four elements that determine value are:

Utility – the capability to satisfy a future owner’s needs


1 and desires

Demand – the need or desire for ownership supported


2 by access to finances that satisfy the need

Transferability – the ease by which the ownership can


3
be transferred

4 Scarcity – the finite supply of similar properties


Appraisal Method Approaches

Cost Approach

Appraisal
Income Capitalization Approach
Methods

Gross Income Multipliers


Appraisal Methods
1) Cost Approach

The cost approach estimates the value of a real estate


 that has been improved by additional buildings. This
method separates the value of the land and the
buildings, taking into account the depreciation. The
estimates are combined to determine the value of the
entire property. The cost appAroach assumes that a
reasonable buyer would not spend more for an
improved piece of real estate than it would cost to buy
a bare lot and build a comparable building. This
method works well when the property is a type that
does not come to the market frequently, such as a
church, school, government building, or hospital.
Appraisal Methods
2) Income Capitalization Approach

The income approach represents another common


method of real estate appraisal. This considers the
relationship between the net income of a property and
the rate of return that an investor seeks. Generally, the
income capitalization approach is used to put a value
on income producing properties including office
buildings, apartment complexes, and shopping centers.
This type of appraisal is straightforward when the
property has consistent and predictable revenues and
expenses.
Appraisal Methods
3) Gross Income Multipliers

The gross income multiplier method is used to value a


real estate that could become a rental property, such
as single-family homes or duplexes. The GIM method
relates the expected rental income to the sales price of
the real estate. For residential properties, the gross
monthly income is considered. For industrial and
commercial properties, the gross annual income is
considered.
Thank you !
Thank you !

You might also like