How Real Estate Appraisal Works

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Property valuation is usually carried out by qualified personnel. Even though, in a number of places no license or certification for real estate appraisal is required. In contrast to company valuation, real estate valuation is not assessed on the grounds of proposed development, and excludes the use of assumptions to influence decisions.

A real estate appraisal can be carried out using several approaches which include the comparison of prices on the market.

Calculation of the depreciation replacement cost of the property is particularly suitable for single use buildings or off-market properties such as schools and museums. The value is divided by the total discount rate, and is the formula used by financial institutions.

When applying the earned value method, it is the value of the building, separated from the land value on the basis of the yield that is used to determine the appraisal outcome. The land value is usually established using the discussed comparison approach.

This procedure can be employed especially if revenue generation is the key criterion for the real estate investment.

This applies especially to residential properties from three residential units, commercial properties and real estate such as hotels, hospitals and leisure property.

When applying the intrinsic value method, the value of the physical structure, and the value of other assets, are separated from the land value. The land value is determined using the comparative method. The asset value method is applied mainly for owner occupied properties, such as family homes. The asset value is also used to derive a market consistent outcome.

Land valuation is performed according to the exact stipulations of the building code. Replacement cost estimation involves appraising the cost of rebuilding a depreciated property, and applying a coefficient to the result of obsolescence.

It establishes the value of the land considered vacant according to its utilization. The result of this method is more accurate, and a true market value of this method should properly take into account economic obsolescence factors.

Several reasons may lead to the estimation of the value of a building, and these include preparing a mutation, financing or refinancing of a property. Performing property management tasks, such as assessing the building replacement value, taking stock of the current value of the property, assess ing rental value.

Also for tax remittances purposes or checking their validity (transfer taxes, property tax on property). Annual declarations of the value of a property portfolio listed on the stock exchange or defending its rights in court.

 

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