Property valuation is defined simply as the process in which the economic value of real estate is determined by establishing the price at which an informed seller would willingly sell their property to an informed buyer. Doing an accurate property appraisal relies entirely on collecting data methodically and accurately. There is no one universal way for Daytona Beach property appraisers to determine a property’s value. Instead, we utilize three different valuation approaches – continue reading to learn more.

Sales Comparison Approach

Sometimes called the market data approach as well, this method of property appraisal is commonly used in valuing single-family homes and land. Derived by comparing the property in question with nearby recently sold properties that share similar features (known as comparables), this approach proves highly effective for single-family homes due to the many variables available for analysis.

An experienced Volusia County appraisal office knows to use at least three to four comparables during the valuation process. The most important factors to consider are the size, similar features, and location relative to the property being appraised. In order to serve as a legitimate comparison, comparables must be the following:

• Be as similar to the subject property as possible.
• Have been sold within the last year.
• Have been sold under typical market conditions.

Income Capitalization Approach

This method of valuation is based on the relationship between the rate of return an investor requires and the net income that a property produces. Property appraisals using the income capitalization approach are best done when the property in question can be reasonably expected to generate future income, with expenses that are predictable and steady. Examples include apartment complexes, shopping centers, and offices.

In order to conduct a successful income capitalization approach to property valuation, appraisers must do the following:

• Accurately estimate the annual potential gross income of the property.
• Consider vacancies, rent collection losses, and other losses to determine the effective gross income.
• Add up annual operating expenses to calculate the yearly net operating income.
• Estimate how much a typical investor would pay for the income produced by the type and class of property in question under typical market conditions (known as capitalization rate).
• Apply the capitalization rate to the net operating income to determine an accurate estimate of the property’s value.

Cost Approach

Most often used to appraise schools, churches, hospitals, and other properties that don’t generate income and aren’t sold often, the cost approach is most effective at estimating the value of properties that have been improved by one or more buildings. Each building is individually valued, then they are added up (taking into consideration depreciation) for the total appraisal of the improved property.

There are several ways to estimate building costs which include the following:

• The cost per square foot of a comparable building built within the last year is multiplied by the square footage of the subject building.
• Estimation of the quantities of raw materials that will be needed to replace the subject building, as well as the current price of those materials and cost of installation.

Accurate real estate appraisal is crucial for investors, property buyers, mortgage lenders, and more to ensure that they are getting the most dependable valuation of a property. While appraisal services are best left to the experts, it still stands to benefit anyone involved in a real estate transaction to know more about property valuation. Each appraisal is developed for a specific use and for a specific user so trust in the team at Cooksey & Associates to use the most appropriate valuation approach for your property. Since 1987, we have served a variety of clients in East Central Florida with a commitment to quality and timely service.