The cost approach is a method of determining the value of real property that involves the construction costs of the building combined with the value of the land the improvements are on. When developing the cost approach, an appraiser typically uses a cost handbook such as the Marshall Swift Cost Handbook. There are other cost handbooks available, but the Marshall Swift Cost Handbook is the premier handbook that is recognized by the vast majority of appraisers in North America.
Below is a link to the Marshall Swift Cost Handbook Company.
Marshall Swift Cost Handbook
Cost handbooks are available for residential, commercial, and various other types of properties. Each cost handbook varies from the others, so to develop a value estimate that is most accurate, follow the given directions pertinent to each cost handbook.
When developing the value of a property from a cost handbook, it is important to remember to take into account the age of the property for depreciation purposes, and the condition of the property for deductions in maintenance related insufficiency issues. Another key element of developing the cost approach valuation is the inclusion of the land that the improvements sit upon.
May 1, 2010
The Sales Comparison Approach
When valuing real estate, there are many methods at your disposal to derive a value for the property. One commonly used method is the sales comparison approach.
The sales comparison approach utilizes recent sales of the most comparable properties in the area to derive a value for the subject property. The best comp available is the one that is across the street from the subject and sold yesterday. Once you have gathered three to five comparable sales, you can begin reconciling them to match the subject more closely.
This process is a simple add and subtract process that adjusts the comparable's prices based on the assets or qualities that they differ from when looking at the subject property. For example, if the only difference between a comp and the subject is square footage, you can calculate the square footage difference and add or subtract from the comp sale price if the subject has more or less square footage.
This method of value determination is a widely used practice that works best on residential properties. The sales comparison method is not typically used for properties that are unimproved (don't have land on them).
The easiest way to develop a sales comparison value is to construct a grid as shown below. It is adapted from the virtual appraisal website.
Sales Comparison Grid
Subject Sale #1 Sale #2 Sale #3
Sales Price
Distance
Date
Concessions
Land Area
View
Location
Quality
Type
Condition
Room Count
GLA
Basement
Bsmt Finish
Utility
Parking
Porches, etc
Heat/AC
Other
Total Adjustments
Indicated Price
The appraiser would simply fill out the information for the column on the left for the subject and each of the three comparables, then the reconciliation can begin.
The sales comparison approach utilizes recent sales of the most comparable properties in the area to derive a value for the subject property. The best comp available is the one that is across the street from the subject and sold yesterday. Once you have gathered three to five comparable sales, you can begin reconciling them to match the subject more closely.
This process is a simple add and subtract process that adjusts the comparable's prices based on the assets or qualities that they differ from when looking at the subject property. For example, if the only difference between a comp and the subject is square footage, you can calculate the square footage difference and add or subtract from the comp sale price if the subject has more or less square footage.
This method of value determination is a widely used practice that works best on residential properties. The sales comparison method is not typically used for properties that are unimproved (don't have land on them).
The easiest way to develop a sales comparison value is to construct a grid as shown below. It is adapted from the virtual appraisal website.
Sales Comparison Grid
Subject Sale #1 Sale #2 Sale #3
Sales Price
Distance
Date
Concessions
Land Area
View
Location
Quality
Type
Condition
Room Count
GLA
Basement
Bsmt Finish
Utility
Parking
Porches, etc
Heat/AC
Other
Total Adjustments
Indicated Price
The appraiser would simply fill out the information for the column on the left for the subject and each of the three comparables, then the reconciliation can begin.
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