We utilize the three (3) basic approaches to valuing real estate.
The Market Data Approach is sometimes called the “Sales Comparison” approach to value. Sales of recently sold, similar properties are compared to the subject property in order to arrive at an estimate of value.
The Income Approach to value allows property investors to estimate the value of a property based upon the income the property produces. Market Value = Net Operating Income, or; take the Net Operating Income of the rent collected and divide it by the Capitalization Rate (the property investor’s rate of return) to arrive at an estimate of value.
The Cost Approach is described as such that a potential investor of real estate won’t, or shouldn’t, pay more for a property than it would cost to build an identical property. The factoring of the cost of construction, minus depreciation, plus the land gives a good indication of market value.
Essentially, all of these approaches to value are market data approaches since the data inputs are derived from the market. That said, we always take into consideration any intrinsic characteristics or circumstances related to the subject property that may affect value positively or negatively.