RE: Real Estate Appraisal

Note: Competitive Market Analysis performed by a broker is not the same as an appraisal and does not serve the same purpose

Market Value: Most probable price that a property should bring in an open competitive market in which market participants have typical bargaining power and information

Other types of values for appraisers: Assessed value, Insurable value, rental value

Basic Principles of Value
Anticipation: Value affected by "what will be" in addition to "what is"
Change: Appraisals are only valid at a particular point in time
Substitution: The value of a parcel is affected by the value of the "next best alternative"
Contribution: The value of a part of the real estate depends on the value it adds to the whole

Appraisal Income Approach
Based on the principle that the property's value should be related to the cash flows that the property can generate for an investor

Approach is most useful for income producing properties or those that could be used to produce income

Gross Income Multiplier (GIM)
GIM = Value / Gross Income
Value = Gross Income x GIM

EG: GIM for warehouses in downtown is 8. Subject property is a warehouse withestimated effective gross income of 25k per year. Estimated value of property is

V=25k x 8 = 200k

Gross Rent Multiplier (GRM)
Used with residential properties
Uses monthly gross rents rather than annual gross income

Net Income Capitalization
capitalization rate = net income / value
value = net income / cap rate


EG: Cap rate for properties in an area is 12%. Subject property has expected first-year NOI of 240k Estimated value is V = 240k / 0.12 = 2,000,000