Approaches to Value
There are three generally recognized approaches to achieve an indication of value in the appraisal of real property. These include the sales comparison approach, the income capitalization approach and the cost approach.
Sales Comparison Approach: The sales comparison approach involves the search of similar type property, analyzing the sales and estimating a value for the subject based on the analysis. The principle of substitution is particularly relevant in this approach whereby the theory is that value is controlled by prices paid for similar properties having like utility.
Income Capitalization Approach: This approach to value converts anticipated future benefits of ownership, typically income received during a holding period, into a value estimate. The anticipated future income is converted, or discounted, to a present value.
Cost Approach: In this approach, the value is related to cost new of the improvements, less depreciation, plus land value and an incentive for the undertaking of the coordination of the project.
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