REAL ESTATE EVALUATION Concepts and definitions 1 . Real estate market Real estate market plays a determinative role in every country’s economy since it is the most important asset in every citizen’s portfolio. Although real estate represents only a small percentage of G. D. P. , it supports the economy and significantly affects macroeconomic indexes such us consumption and investment. 1 . 1 Characteristics of the real estate market Real estate is considered to be a very heterogeneous product with the following characteristics: l. High costs and low transaction number. II.
The supply curve reacts very slowly in comparison with the demand curve due to many reasons such as: land insufficiency, constructing period, license issue. Ill. The options of financing vary from country to country. IV. The tax policy has huge effect on the market. V. In countries with high rate of owner occupancy the market moves in a slow pace. 2. Concepts and definitions 2. 1 Real Estate Real estate is “Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water, immovable property of this ature or an interest vested in this. . 2 Real Estate valuation (or appraisal) The act of estimating the value of real estate by a person licensed to do so. A person performing an appraisal must receive authorization from the appropriate body of the state in which he/she resides. A real estate appraisal may take into account the quality of the property, values of surrounding properties, and market conditions in the area. It is important for determining the property taxes for which the owner is liable, as well as a potential sale price, if the owner wishes to sell his/her property. 3Fair value Fair value is the value of an asset or liability in an arm’s length transaction between unrelated, willing and knowledgeable parties. 2. 4Market value Market value is the price at which an asset would trade in a competitive auction setting. 2. 5Highest and best use In order for a property to get successfully valuated, its optimal use is taken for granted. By optimal use we mean the best possible way that a property could be exploited, which results in the most profitable outcome. 3. Valuation methods
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There are 3 basic approaches to the issue of real estate appraisal: the sales comparison approach, the cost approach and the income capitalization approach. In addition to these, there are several more methods. Deciding which one to use must be an accurate procedure. The method should be in accordance with the propertys nature and potential. 3. 1 Basic methods for real estate valuation The most basic methods used for evaluation of real estate are as follows: 1 . Market or sales comparison approach. (competitive market anslysis) 2. Cost approach. 3. Income capitalization approach.