The main property valuation methods

1.

The Main Property Valuation Methods

2.

One of the most important
features of owning a rental
property is its value. Before
we delve into the main
property valuation methods,
it’s imperative to
understand the importance
of a property’s value.

3.

1.Why Property Valuation is Important?
2.Fair Market Value.
• Market conditions
• Location
• Age

4.

The Main Property Valuation Methods:
1. Sales Comparison Approach;
2.Cost Approach;
3.Income Capitalization Approach.

5.

• Research the market for comparable data;
• Develop relevant units of comparison;
• Compare the sales to the subject and adjust for
dissimilarities;
• Reconcile the value indications into a final
value opinion.

6.

Coast Approach
Most applicable when:
• Improvements are new and are highest and best use;
• Subject property has characteristics typical in the
area;
• Subject property is a special use property;

7.

Income Capitalization Approach
This method subdivides
into two property
valuation methods:
1. Direct capitalization;
2. Gross income
multipliers.

8.

Direct Capitalization
• Focuses on a property’s income;
• A property’s annual gross income is estimated;
• The property’s value is then estimated using
the property’s capitalization rate, or cap rate,
and net operating income.

9.

Gross Income Multipliers
• Used for real estate properties that are not
initially purchased as income properties but
end up being used as such.

10.

Conclusion
Knowing the main property valuation
methods is vital to for real estate appraisal.
While landlords and investors do not
necessarily have to know the ins and outs of
the property valuation methods, it’s always a
good idea to have a basic idea.