"What's my property worth?" Our clients ask that question all the time. NAI Hanson has consulted on hundreds of property evaluations for our clients to determine their property’s current market value.
There are three (3) approaches to the problem of finding market value. All data utilized in these approaches come from the market place as evidenced in sales. The approaches are commonly referred to as Market Income and Cost Approach.
- The Market Data Approach is sometimes called the “Sales Comparison” approach to value. Sales of similar properties are compared to the property under review in order to arrive at the estimate of value.
- The Income Approach to value is utilized by analyzing gross income, deducting an amount for vacancies and other rent losses and deducting all expenses in order to apply an appropriate capitalization rate to the resulting net income.
- The Cost Approach is utilized by estimating market costs, the replacement cost of a building and other improvements, then deducting depreciation -- which is a loss in value from all causes -- and adding this depreciated value to the value of the land upon which the improvements are constructed.
In essence, all approaches to value (particularly when the purpose of the opinion is to establish market value) are market data approaches since the data inputs are presumably market derived.