Method of Real Estate Property Appraisal and Valuation

  • The sales comparison approach

    This approach requires the appraiser to review the real estate market for sales that have occurred near the date of valuation and to select comparable sales that best reflect the subject property. These sales are then adjusted based on features of the property that differ from the subject. The comparables chosen and the way adjustments are made will have a direct impact on the final indication of value developed by this approach. Differences in the assumptions from one appraiser to the next can result in different value opinion.

  • The cost approach

    This approach requires that the appraiser value the site as if vacant and then add in the costs to develop the property to its current use, then adjust for physical deterioration, functional deficiencies and external factors that may negatively affect the value of the property.  In some cases, the current use is not the highest and best use and other adjustments may be required.

  • Income Approachs

    The income approach evaluates a property based on its potential to create income for the owner. The Direct Capitalization which is simply the product of dividing the annual net operating income (NOI) by the appropriate capitalization rate (CAP rate). The Discounted Cash Flow also known as Net Present Value of Discounted Cash Flows is a valuation method which discounts future cash flows back to the present to estimate the attractiveness of a real estate investment.Different appraised value estimates may arise based on different assumptions about the income the property will generate.

  • Specif approachs

    Used for trading properties where evidence of rates is slight, such as hotels, restaurants, Movie Theater or old-age homes.

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