Chapter 4 - Valuation and Market Analysis

Appraisal

An estimate (opinion) of value.

Market Value

The most probable price in a competitive and open market under fair conditions.

Comparative Market Analysis (CMA)

Utilizes the sales comparison approach to determine the market value of a property.

Economic Principles of Value

Factors like demand, utility, scarcity, and transferability that influence property value.

Highest and Best Use

The optimal use of a property that results in the highest value.

Substitution

Using similar properties to determine market value.

Contribution

Elements that add value to a property, like a community pool or clubhouse.

Change

The concept that value can fluctuate over time.

Conformity

Ensuring a property fits within the neighborhood to maintain or increase value.

Anticipation of Value

Present worth of future benefits, especially for income-producing properties.

Plottage

Increase in value from combining adjacent lots into a larger one.

Influences on Value

Social, economic, political, and physical factors that affect property value.

Approaches to Value

Sales comparison, income, and cost approaches used to estimate property value.

Depreciation

Types include physical deterioration, functional obsolescence, and external obsolescence.

Comparative Market Analysis (CMA)

Utilized by real estate agents to determine property value through the sales comparison approach.

Broker Price Opinion (BPO)

A cheaper alternative to formal appraisals, often used by banks for property valuation.

The Appraisal Process

Involves defining the problem, collecting data, applying valuation approaches, and reconciling estimates.