Valuation of Real Estate Properties

Valuation of Real Estate Properties

Valuation of any commercial property is intrinsically valuable as it determines the worth of any particular real estate property.

Income Valuation Approach

In this scenario, a comparison is created where an investors’ acquisition price is centered on the anticipated return rate against the investment’s intrinsic risk.

This valuation approach approximates the present value of anticipated future returns from the investment plus the cash realized on the property’s disposal.

The idea is simply the property’s worth depending on the anticipated return rate that an investor will require to finance the property.

Cost Valuation Approach

The cost valuation approach looks at what the investor would incur to acquire land and erect a new property with the same fundamental amenities as the extant property being valued, i.e., the subject property.

It takes into account the depreciated value of the existing property in determining the viability of constructing a new property in the present market, or the property location is not conducive for its new utilization, i.e., an investor should not be in a position to incur additional costs for real estate investment in contrast to the cost the same investor would incur in buying raw land and erecting a similar property.

Sales Valuation Approach

Under this valuation approach, the prices of similar properties are compared in the current market.

Factors such as size, age, location, and property state are considered when comparing the property values. Market condition differentials adjustments are made at the time of sale.

The ideology is that an investor is not expected to incur higher costs than other investors would for a similar property.

Reading 39: Private Real Estate Investments

Los b: Compare the income, cost, and sales comparison approaches to valuing real estate properties.