Real Estate Notes

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REAL ESTATE CHAPTER 7

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VALUATION USING THE SALES COMPARISON AND COST APPROACHES

INTRODUCTION

* This chapter is focused on estimating the market value of a property through formal approaches of real estate valuation.

Characteristics of NYSE:

* There are many buyers and sellers on the NYSE.

* Many transactions occur each hour, and thus market prices are revealed almost instantaneously and continuously during a trading day.

* Each share is exactly alike, and so any one share is a perfect substitute for another.

* The location of the seller or the share has no bearing on the price potential buyers are willing to pay.

Characteristics of Real Estate Market:

* No two properties are exactly alike.

* Transactions of similar properties occur infrequently, resulting in a scarcity of comparable price data.

* Since a parcel of real estate cannot be moved from its location, and its value is subject to the effects of economic, social, or political developments emanating from the regional community, and neighborhood levels.

* They are local in nature.

Appraisal – is an unbiased written estimate of the market value of a property

Subject Property – the property of which an appraisal of fair market value is produced

Appraisal Report – is a document that the appraiser submits to the client and contains the appraiser’s final estimate of value, the data upon which the estimate is based, and the reasoning and calculations used to arrive at the estimate

MARKET VALUE, INVESTMENT VALUE, AND TRANSACTION PRICES

Market Value – a property’s most probable selling price, assuming “normal” sale conditions

* Market value is the result of interacting forces of supply and demand.

* If real estate markets were perfectly competitive, market value would equal the most recent transaction price.

Investment Value – is the value a particular investor...