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first step. There are numerous ways in which you can evaluate the real market price of the home.
In this article, we elaborate on some of the methods you could use to reach the right conclusion.
Cost Approach
This approach is used for properties that have been redeveloped where you are unable to find a
comparable property. The cost approach is based on the assumption that a reasonable buyer
would not pay more for an existing improved property than the price to buy a comparable lot and
construct a comparable building.
Step 1: Under this method, you need to assess how much the property would cost to rebuild, either
an exact replica of the current building or with comparable features with modern technology and
construction materials.
Step 2: Calculate the depreciation of the property which represents the reduction in the value of the
property over time as a result or wear and tear.
Step 3: Arrive at a fair price after factoring in depreciation.
Component Approach
Under this method, the value of the land and the value of the building (construction cost) can be
assessed separately and added to get a fair estimate of the property price.
For assessing land price: Land value can be calculated from the instances of sale of built-up
properties in the locality, considering the shape, frontage on the main road, zone use and plot
coverage and floor area ratio.
In cities where urban land tax is collected, the value of the land assessed by urban-local authorities
can be taken as a guide to arrive at land value. The price fixed by development authorities or
housing boards while offering the sites for sale can also be taken into account. For land parcels
which are situated in the periphery of the city, the seller should also consider the development
potential as the guidelines value.
For assessing building cost: The value of the building is arrived at by working out the reproduction
cost and assessing the present value by factoring in depreciation.