Data collection methods and valuation process data

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Data collection methods and valuation process Data are collected on recent sales ofproperties similar to the subject being valued, called comparables. Only SOLD properties may beused in an appraisal and determination of a property's value. Sources of comparable data includereal estate publications, public records, buyers, sellers, real estate brokers and/or agents,appraisers, and so on. Important details of each comparable sale are described in the appraisalreport. Since comparable sales aren't identical to the subject property, adjustments may be madefor date of sale, location, style, amenities, square footage, site size, etc. The main idea is tosimulate the price that would have been paid if each comparable sale were identical to thesubject property. If the comparable is superior to the subject in a factor or aspect, then adownward adjustment is needed for that factor. Likewise, if the comparable is inferior to thesubject in an aspect, then an upward adjustment for that aspect is needed. From the analysis ofthe group of adjusted sales prices of the comparable sales, the appraiser selects an indicator ofvalue that is representative of the subject property.Steps in the sales comparison approach 1. Research the market to obtain informationpertaining to sales, and pending sales that are similar to the subject property. 2. Investigate themarket data to determine whether they are factually correct and accurate. 3. Determine relevantunits of comparison (e.g., sales price per square foot), and develop a comparative analysis foreach. 4. Compare the subject and comparable sales according to the elements of comparison andadjust as appropriate. 5. Reconcile the multiple value indications that result from the adjustmentof the comparable sales into a single value indication.The income capitalization approach
The income capitalization approach (often referred to simply as the "income approach")is used to value commercial and investment properties. Because it is intended to directly reflector model the expectations and behaviors of typical market participants, this approach is generallyconsidered the most applicable valuation technique for income-producing properties, wheresufficient market data exists.In a commercial income-producing property this approach capitalizes an income streaminto a value indication. This can be done using revenue multipliers or capitalization rates appliedto a Net Operating Income (NOI). Usually, an NOI has been stabilized so as not to place toomuch weight on a very recent event. An example of this is an unleased building which,technically, has no NOI. A stabilized NOI would assume that the building is leased at a normalrate, and to usual occupancy levels. The Net Operating Income (NOI) is gross potential income(GPI), less vacancy and collection loss (= Effective Gross Income) less operating expenses (butexcluding debt service, income taxes, and/or depreciation charges applied by accountants).

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