EVALUATION / APPRAISAL Services: - Evaluation / appraisal of the property by 3 methods (3 approaches to value of property):
The cost approach was formerly called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. The value of the improvements is often referred to by the abbreviation RCNLD (reproduction cost new less depreciation or replacement cost new less depreciation). Reproduction refers to reproducing an exact replica. Replacement cost refers to the cost of building a house or other improvement which has the same utility, but using modern design, workmanship and materials. In practice, appraisers use replacement cost and then deduct a factor for any functional disutility associated with the age of the subject property. In most instances when the cost approach is involved, the overall methodology is a hybrid of the cost and sales comparison approaches. For example, while the replacement cost to construct a building can be determined by adding the labor, material, and other costs, land values and depreciation must be derived from an analysis of comparable data. The cost approach is considered reliable when used on newer structures, but the method tends to become less reliable for older properties. The cost approach is often the only reliable approach when dealing with special use properties (e.g. - public assembly, marinas). - Sales comparison approach
The sales comparison approach examines the price or price per unit area of similar properties being sold in the marketplace. Simply put, the sales of properties similar to the subject are analyzed and the sale prices adjusted to account for differences in the comparables to the subject to determine the value of the subject. This approach is generally considered the most reliable if adequate comparable sales exist. In any event, it is the only independent check on the reasonability of an appraisal opinion. Note that this approach develops value from a purely pricing scheme, and as such is an example of a revealed preference model. An interesting perspective on the relationship between relatively subjective human estimation as compared with that obtained by purely mathematic modeling is contained in "Simple Heuristics That Make Us Smart" by Gerd Gigerenzer. Dr. Gigerenzer, a psychologist, asked people to estimate some real world facts based simply on their knowledge, experience and impressions. Common knowledge and some simple rules created models which were close to those produced by multiple regression analysis (MRA) and neural networks. The predictive value of the human models applied to a new sample was a bit better than the mathematical models, suggesting that the mathematical models may have described the data better but missed the predictive relationships. Similarly automated valuation models frequently find building size (square feet or meters) predictive of value, even when that information is not explicitly advertised. - Income capitalization approach
The income capitalization approach (often referred to simply as the "income approach") is used to value commercial and investment properties. Because it is intended to directly reflect or model the expectations and behaviors of typical market participants, this approach is generally considered the most applicable valuation technique for income-producing properties, where sufficient market data exists to supply the necessary inputs and parameters for this approach. In a commercial income-producing property this approach capitalizes an income stream into a value indication. This can be done using revenue multipliers or capitalization rates applied to the first-year Net Operating Income. The Net Operating Income (NOI) is gross potential income (GPI), less vacancy and collection loss (= Effective Gross Income) less operating expenses (but excluding debt service, income taxes, and/or depreciation charges applied by accountants). Alternatively, multiple years of net operating income can be valued by a discounted cash flow analysis (DCF) model. The DCF model is widely used to value larger and more expensive income-producing properties, such as large office towers. This technique applies market-supported yields (or discount rates) to future cash flows (such as annual income figures and typically a lump reversion from the eventual sale of the property) to arrive at a present value indication - Determination of the best use of the property / land plot
- Express analysis of the investment appeal of the property / land plot
- Express evaluation of the market rental and sale indexes
Conducting of each property includes the following phases: - Analysis of the property location
- Main characteristics of the property
- Description of the property – subject of research, surrounding constructions (level and type of the buildings, known projects under construction and planned). Development outlook. Evaluation of the overall image.
- Advantages and disadvantages of the location for the various usage of the property (SWOT-analysis).
- Marketing analysis
- Analysis of the competitive environment
- Research of rental and sale price indexes
- Determination of the target group.
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