Sales Comparison, Cost, And Income Approach

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There are three types of approaches, sales comparison, cost, and income approach most appraisers use during an appraisal of real estate, residential, or income property sites. Each appraisal and its approach vary from different processes, terms used for them, and their methods. Appraisers general will complete all three approaches and then take the average to value the property over all. The next paragraph will explain what these appraisals are in more detail. First, the sales comparison approach can be used in appraisals are real estate, residential, and income property. This approach values the property being appraised by compare it to other similar properties in the same area. For instance, with real estate property, an appraiser would…show more content…
Some elements to compare would be property type, rights of ownership, date of sale, and physical condition. Then they will calculate different units of comparison, like price per acre, price per square foot, and price per front foot. Once all this information is collected, an appraiser can make relevant comparisons and adjustments of value into one single value indictor or a range of values. This approach can be used for real estate property any time. Residential property can only use this approach if there are comparable properties. One reason not to use this approach when appraising residential property would be the property is unique and does not sell often in the market. Another reason, would be even if there are some similarities in properties, but many differences there would be too many adjustments to be made to generate a reasonable market value. Lastly, the financial arrangements can also have an effect on the comparison for a property as well. For income property, sales comparison technique is used with application of a gross rent multiplier. This multiplier determines the market value by finds comparable rental property, and then takes those…show more content…
This includes the risk, time, interest, and recapturing depreciation of the property. The appraiser must first calculate the possible income from the real estate property, what kind of vacancies that may occur, costs for operating the property, to result to potential net income. Once the possible net income is computed the appraiser must chose a capitalization rate to create a reasonable market value. For residential property, this approach is usually not generally used because once the property is sold there is no profit or benefit to be gained by the owner. For income property, the process is similar to the sales comparison approach using the gross rent multiplier or the cash flow analysis for capitalization. The gross rent multiplier approach was described in previous paragraphs. The capitalization approach however is divided into two types; direct and yield. For direct capitalization, an appraiser must first calculate the net operating income by estimating the rent revenues less the operating expenses. Then the net operating income is converted to an estimated value for the property. The calculation to do this is the net operating income divided by the capitalization rate chosen by the appraiser. The yield process is similar to the direct capitalization however it expands to future values. The current net operating income is used and

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