Valuation of Real Estate Assets

Written by Ira Krumholz, CPM®
President of NAI Daus Property Management Division
[email protected]
Twitter @IraKrumholz
216-455-0905

Determining the value of a real estate asset is never an easy thing but the historic free fall in real estate values a few years ago and subsequent uneven recovery has made this task significantly more difficult. This month, we are going to discuss how a tumultuous market can impact the traditional approaches to determining value – cost approach, sales comparable approach and income capitalization approach. Before we do, a brief discussion of the three primary types of value is in order.

Market Value. This represents the most probable price, at a specific date, which a property should sell for after reasonable exposure in a competitive market under all of the conditions for a fair sale. There are a couple additional things to note. First, neither buyer nor seller should be under any duress, with both parties knowledgeable and informed. And second, the price should be based on the property’s highest and best use, which may or may not be the property’s current use.

Investment Value. This type of value is all about the value to a specific purchaser, with little regard to the larger overall marketplace. One example of this would be a purchase by an investor involved in a 1031 tax-deferred exchange. Motivated by the deferral of a tax consequence, a trade buyer is typically willing to pay more for a property as compared to a traditional buyer. Another example would be a property owner that controls almost an entire block of property, except for one parcel. The owner would typically be willing to pay more for that outstanding parcel as compared to a traditional buyer. Click here read entire article. Click here to read entire article.