Valuation Services
We prepare appraisals for funding, legal, taxation and estate purposes as well as employee relocation (ERC) and FHA reports throughout the majority of Eastern and Central Massachusetts.
The Three Approaches to Value
Direct Sales Comparison Approach
In the direct sales comparison approach, the subject property is compared to similar properties that have recently sold and can be supported by real estate that is currently active or under contract for purchase. These properties are adjusted to the subject with regards to differences in location, condition, living area, features, etc.
A method for estimating appropriate and supported adjustments is the pairing of data sets from sales within the subject's market. This involves two or more comparables where variances are observed. Comparing the sales will give an indication of the market reaction to the variance. If sufficient market data does exist, an estimated adjustment will be based on historic market knowledge.
Income Approach
The income approach to value is an analysis of anticipated future benefits converted to an estimated present value. This is done by estimating of potential gross income for the subject. If market data permits, a good indicator of rates for use in valuation would come from actual sales of property rented or leased at the time the transactions occurred. In some instances, the use of this approach is not warranted. This occurs when a property is not readily rented or is not typically used for investment purposes.
Cost Approach
The cost approach to value is as market oriented as the other two approaches. It involves comparable sales of land which are used to estimate site value. Additionally, the cost new of the building(s) and other improvements are calculated. This is done by consultation with area contractors who specialize in the type of property being appraised and through recognized cost service manuals.
After the cost new has been estimated, depreciation from all sources must be approximated. Depreciation is a measure of the loss of in value inherent in the property. Depreciation falls under three major headings; 1. Physical, actual wear and tear on the structure and its components. 2. Functional obsolescence, which is an impairment of functional capacity, efficiency, or the inability of the improvement to perform adequately. 3. External, which is a loss in value due to factors external from the property. This can include economic situations, factor regarding location, market condition or even environmental forces.
The cost approach is most applicable to new or reasonably new structures. The inherent liability in utilization of this approach to value is the estimation of actual depreciation from all causes. As a property ages, this approach will have lessening validity as an indicator of value.
Correlation
All preliminary value estimates, as indicated by any of the three separate approaches, are correlated into a final estimate of the property's worth. In the final correlation, the relative significance of each approach is weighed as it pertains to the type of property being appraised. After the most relevant approach and or approaches are determined, the approaches are weighed and a final estimate of value is formed.
Contact
Bay State Residential Appraisals
PO Box 374
Allston, MA 02134
Phone: 508.989.3499 | Fax: 508.485.0863
Email: orders@baystateresidential.com
