Methods

The valuation process for real estate most typically involves the utilization of three methods of valuation often referred to as "approaches." The approaches to valuation of real estate are briefly described as follows:

Cost Approach
In the cost approach, an estimated reproduction or replacement cost of the building and land improvements as of the date of valuation is developed together with an estimate of the losses in value that have taken place due to wear and tear, design and plan, or neighborhood influences. To the depreciated building cost estimate, the estimated value of the land is added. The total represents the value indicated by the cost approach.

Sales Comparison Approach
In the sales comparison approach, the subject property is compared to similar properties that have sold or for which listing prices or offering figures are known. Data for generally comparable properties is used, and comparisons are made to demonstrate a probable price at which the subject property would sell if offered on the market.

Income Capitalization Approach
In the income capitalization approach, the rental income to the property is shown with deductions for vacancy and collection loss and expenses. The net operating income of the property is based upon actual (current market) and estimated leases. An applicable capitalization method and appropriate capitalization rates are developed and used in computations that result in an indication of value commensurate with the risks for the subject property.