Real Estate Valuation Approaches Lecture Notes

Introduction

• Presenter: Maggie Rehoso
• Platform: Just Call Maggie YouTube Channel
• Focus: Real estate valuation approaches
• Approaches Covered:
  • Sales Comparison Approach
  • Cost Depreciation Approach
  • Income Approach

Sales Comparison Approach

• Also known as the Comparable Sales Method
• Application:
  • Used to determine the value of a property by comparing it to similar properties in the area.
  • Real estate agents conduct a Comparative Market Analysis.
  • Choose 3 to 5 similar homes to compare with the subject property.
• Principle: Substitution, where the lowest-priced home draws the most demand.
• Uses: Residential properties and vacant land in established neighborhoods.
• Exam Tip: Most common approach used by agents for residential properties.
• Example:
  • Price adjustment for differences in features like bedrooms or bathrooms using CIA (Comparable Inferior Add) and CBS (Comparable Better Subtract).

Cost Depreciation Approach

• Also known as the Cost Method
• Purpose: Estimate current cost to reproduce or replace a building factoring wear, tear, and land value.
• Types of Costs:
  • Replacement Cost: Cost to build a comparable structure with current materials and designs.
  • Reproduction Cost: Cost to build an exact replica with the same materials and design, often used in historic property appraisals.
• Uses:
  • Suitable for newer properties, insurance, renovation estimates, and special-purpose buildings like schools or libraries.
• Example: Calculation of accrued depreciation using effective age and economic life.

Income Approach

• Purpose: Valuation of income-producing properties like rentals or businesses.
• Techniques:
  • Direct Capitalization: Market value = Net Operating Income / Capitalization Rate
  • Gross Multiplier: Uses gross rent or income instead of net income.
• Examples:
  • Calculating market value using net operating income and cap rate.
  • Determining capitalization rate.
  • Finding net operating income with given market value and cap rate.

Additional Resources

• E-Workbook: "Math Skills for Real Estate Success"
  • Aimed at helping real estate agents with math-related questions.
  • Available through a link in the video description.

Conclusion

• Encouragement to like, subscribe, and follow for more real estate content and resources.
• Emphasis on mastering real estate math for professional success.