Valuation Methods for Real Estate Property

The valuation of a real estate property is a basis for different investment decisions. We appraise different real estate types like hotels, office, industrial, logistics, retail etc. In appraisals we use the following methods from which the most appropriates are chosen.

1. Comparable Sales Approach

In the comparable sales approach, a value is created by looking at what similar properties in a similar market have sold for.

2. Income Approach

The income approach values properties based on the income that they produce. Typically, the analysis starts with calculating a net operating income for the property that takes its rent and its operating expenses into account. Next, the person conducting the analysis chooses a capitalization rate, which is an income multiplier. The cap rate is usually derived from comparable sales data.

3. Cost Approach

The cost approach values properties on the basis of what it would cost to build them today. The valuation starts by estimating the cost for labor and materials to either build a comparable replacement building or to completely reproduce the building, depending on the scope of the analysis. Next, the appraiser subtracts out an estimate of the building's loss of value due to depreciation since the building being analyzed is probably not in the same condition as a newly constructed property.