ASSESSMENT APPROACHES

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ASSESSMENT APPROACHES

ASSESSMENT APPROACHES

Internationally, three Valuation Approaches are known: COST or REPOSITION, MARKET AND INCOME (INCOME).

Every property must be analyzed using the cost, income and market approaches, considering in its application those particular factors or conditions that influence or can significantly influence the values, reasoning and weighing the valuation results by the approaches used according to of the characteristics,

The approaches are the starting point for the application of Valuation Methods, direct and indirect, that are simply the path that lead us to reach the final objective: the estimation of the Value of the Good that is assessed or Appraisal Value or Current Value which is how they commonly know him.

Market Approach
This approach assumes that a well-informed buyer will not pay for a good more than the purchase price of another similar good.

It is based on the Substitution Principle which states that the maximum value of a property tends to be limited by the cost of acquiring another equally desirable property. The feasibility of using this Approach depends on the availability of information on sales comparable to the good that is valued.
Cost or Replacement Approach
This approach establishes that the value of a good is comparable to the replacement or reproduction cost of a new one equally desirable and with utility or functionality.

The Cost Approach is the result of the sum of the Commercial Value of the Land plus the Replacement Value of the Improvements.

The Land Value is estimated from an investigation of the real estate market in the area, from which analysis is duly approved, the Unit Value applicable to the land belonging to the property being assessed.
Income Approach
The Revenue Approach is based on the Anticipation Principle, whereby future net monetary benefits are converted into an estimate of Present Value, using a discount rate appropriate to the type of asset being studied.
Approach and Main Valuation Methods