It is not the same cost, price or value of a property. In this article Raul Estrada from Coldwell Banker Commercial, who has 20 years of experience in valuation, talks about the 3 typical approaches to make Real Estate Appraisals using the comparative market method. He makes a particular emphasis on market analysis which is one of the most sensitive issues to define market values. There are three typical approaches to valuation. 1. Cost approach.
2. Revenue approach.
3. Market approach. If you are interested in selling your home at a fair price contact our real estate consultants who will guide you through the entire transaction, find the agent closest to your area here. 1. COST APPROACH. This has to do with an issue of substitution, that is, how much it costs us today to remake the property as it is. To do this we will need to know how a property is integrated: that is, the land, the buildings and the special facilities. We will determine the value of the land through: 1) A land sale analysis.
2) The value of the constructions.
3) The value of the facilities. There are parametric books that give you values already catalogued and summarized by type of property: houses of economic type, residential type, etc. From there you can take the values and facilities, also what has to do with a tank, for example, the installation of closed circuit television, everything that you attach to a house for security, for fun.That info can be found in these books. The sum of those three components is going to give us the cost value that that is going to indicate how much it would cost us today to rebuild the property we are looking at. Costs: Value of the land + Value of the buildings + Value of special facilities
2. INCOME OR RENT OR DIRECT CAPITALIZATION APPROACH. There are several ways to name it and in the end they all have to do with determining an annual income from the property. What do we do? Annual rents – Expenses = Net annual income / Capitalization rate Analysis of similar property rents to determine how much rent it may be charging for that property. We remove the operating costs, which have to do with expenses inherent in the property that the owner does: the property, maintenance, etc. Everything the owner spends to maintain the property is deducted and that gives us the net annual income. That is, how much does the owner receive from rents already free of costs. We divide that between a capitalization rate and the result is the value per income approach. With that we would have two values already estimated, which could be one or the other. Some appraisers determine averages to determine the commercial value in which the property could go. 3. MARKET APPROACH. Speaking of homes, one of the most important and relevant approaches that will tell us a little more how much a property can cost is the market approach, which by formula is the simplest of the three: Sales value x m2 x saleable surface= Market value It is to determine a sales value per square meter. It is necessary to make an analysis of similar sales, multiply it by the saleable surface of the property and that will give us the market value. If you are a real estate advisor you have to make emphasis on the analysis of similar sales, that is where the key of all this methodology is. As a real estate advisor you are in the market and you are dedicated to sell and visit properties with clients or in tours you do, you have the adequate information to make this analysis feasible and easy to determine the value of properties you want to take in that moment to see how much they are worth. If you are interested in learning more about this topic, you can watch the complete webinar here. Download here the COMPARABLE VALUE APPROVAL template (mentioned in the webinar). Follow us on Facebook Instagram YouTube COLDWELL BANKER MÉXICO