Types of Value

Market Value

Market value is based on the premise that an informed purchaser would pay no more for a property than the cost of acquiring an existing property with the same utility.

The market value of a given building is estimated by comparison with other similar buildings in the same vicinity that have recently been sold or offered for sale in the open market. The first and most important step in the use of the market approach is obtaining accurate and complete information on the sales of comparable buildings in the general vicinity. The market test is not valid without actual sales or offerings of comparable properties. When comparing Cotality costs to market values, it is imperative to determine exactly what the market value represents so that it can be directly compared with the Cotality cost.

Cost Approach

The cost approach assumes that an informed purchaser would pay no more for a property than the cost of producing a like property with the same utility. The land is valued by direct comparison with similar property as if it were vacant and unimproved. The improvements are valued on the basis of the cost of modern improvements that perform the same functions. Deducted from this estimate of replacement costs are the losses in value from all forms of depreciation, physical deterioration, functional obsolescence, and economic obsolescence.

The cost approach is a method of total property valuation that adds two estimates - the replacement cost of the improvements properly adjusted for depreciation and the land value. This approach is a different type of market data approach. Values for land and the improvements and estimates of depreciation are all developed from market comparisons.

Income Approach

The income approach is a conversion of financial benefits of ownership into an indication of value. It is used in the valuation of investment properties such as stores, apartments, shopping centers, and other real estate that is bought and sold primarily on the basis of produced income. The value of such properties tends to be set by the quantity, quality, and durability of the net income generated by the property.

To use the income method, develop an operating statement of income and expenses and then capitalize the estimated net income stream into its present worth.