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Real Estate Approaches Paper

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Ginny Grimes FIN 344-801 Dr. Cummings Real Estate Appraisal Approaches October 31, 2017 Table of Contents Abstract………………………………………………………………………………….3 Sales Comparison Approach…………………………………………………………….4 Cost Approach………………………………………………………………………...4-5 Income Approach………………………………………………………………………..6 Reference………………………………………………………………………………..7 Abstract In a typical appraisal process, the real estate appraiser will consider three different approaches for determining the value of real property (Floyd, C. F., & Allen, M. T. ,2014, pg. 190). Each approach is expected to reflect the thought process of the common buyer in order to assess a property’s most feasible selling price in an open market purchase (Floyd, C. F., & Allen, …show more content…

In this particular approach, appraisers attain an appraisal of the market value of a property by evaluating its worth of production (Floyd, C. F., & Allen, M. T. ,2014, pg. 190). The estimating value is obtained by attaining the appraisal value of the property like it was bare, calculating the costs to produce any needed improvements, deducting accrued depreciation, and include site value (Floyd, C. F., & Allen, M. T. ,2014, pg. 190). The first step in cost approach is to determine the value of the property (Floyd, C. F., & Allen, M. T. ,2014, pg. 196). The value of the property must be determined by using the sales comparison approach first and then adding all the improvements, such as; paving and landscaping, into the total value (Floyd, C. F., & Allen, M. T. ,2014, pg. 196-197). The second step in cost approach is to calculate the production cost of the needed improvements (Floyd, C. F., & Allen, M. T. ,2014, pg. 197). Production cost is determined by reproduction cost or replacement cost (Floyd, C. F., & Allen, M. T. ,2014, pg. 197). Reproduction cost refers to improvements made by using the exact same methods and materials used to construct the property in the beginning (“Approaches to Value in Real Estate Appraisal”, 2014, …show more content…

F., & Allen, M. T. ,2014, pg. 199). An example of an income-producing property is apartment complexes (“Approaches to Value in Real Estate Appraisal”, 2014, “The Income Approach”, para.1). In this particular approach, appraisers predict value by anticipating the future income that is likely to be produced by the property, and then applying that anticipation into a current value (Floyd, C. F., & Allen, M. T. ,2014, pg. 200). The techniques used in income approach are established on the idea that purchasers want to receive expense returns since they purchased income-producing properties (Floyd, C. F., & Allen, M. T. ,2014, pg. 200). The techniques used are gross income multiplier and net income capitalization (Floyd, C. F., & Allen, M. T. ,2014, pg. 200-201). The gross income multiplier measures the relationship between gross income and market value (Floyd, C. F., & Allen, M. T. ,2014, pg. 200). It is a calculation of the linkage between the prices investors will pay for a property and the gross income the property is projected to produce (Floyd, C. F., & Allen, M. T. ,2014, pg. 200). The capitalization rate is the relationship between value and net income and produces a present value estimate (Floyd, C. F., & Allen, M. T. ,2014, pg.

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