APPRAISAL METHODS
There are three different methods to estimate the market value of a property.
COMPARISON METHOD
The comparison method aims essentially at estimating the sale price of a building by the comparison and the analysis of real estate transactions involving properties similar to the property to be estimated. This method is also based of fundamental principle in real estate evaluation: the offer and the demand. This method is often used in real estate to determine the most probable selling price of a property.
INCOME METHOD
The income approach is a real estate appraisal method that allows investors to estimate the value of a property considering the net operating income and a capitalization rate.
The income approach is typically used for all income-producing properties.
COST METHOD
The cost approach is based on the substitution principle for which a buyer will not pay more for a property than the cost required to reproduce a similar one (including the acquisition of the land).
With this method, the property is considered as a physical entity made up of two elements which must be separately estimated: the land and the building!
According to the cost approach, the value of a property represents the cost of the land added to the cost of construction, less depreciation.