The Economic Principles of Real Estate Valuation

The valuation of a real estate property is known as the estimation of a single price that can be paid by an individual for owning the property. The specific method which is most common among the agents and brokers is known as the comparative market analysis (CMA).

For a successful real estate investing, the valuation is definitely important and the process involves the estimate of overall real estate property value calculated on the sale price of other similar properties present within the local area and other similar real estate markets.

During the preparation of CMA, it is essential to check out three currently sold comparable real estate properties and three comparable properties that are presently for sale. This will help in deciding the price of the subject real estate property. The differences is evaluated for adding or reducing the value within the analysis and also estimate a fair market price of the subject property by making use of the comparison approach.

For the valuation of commercial properties, the influences of economic principles are really important. In this article we are going to shed light on the principles as they are applied on the property valuation effort. These are going to be important real estate investing tips once you have an idea about the impact on the valuation of property.

Anticipation: This is actually the expectation for the future benefits. In simple terms, a successful real estate investing needs the determining the value of the investment depending on the anticipated income in future generated by the property. The process involves the valuation of the real estate property depending on the amount it is going to generate in future instead of the current comparisons, analysis, land costs and construction essential for replacing the property. The returns attained from purchasing the property are much more important than the comparative analysis in this scenario.

Conformity: This can be said to be a need for the reasonable compatibility and similarity within a certain location. According to Jeff Adams, the values of compatible land are much higher than the land with certain limitations imposed on them due to location disadvantages. For instance, an apartment located in the primary location or the heart of the city is more likely to have higher value than any other locations.

Supply and demand: This takes into account both the demand and scarcity of the subject real estate property. Though the real estate properties with similar economic and physical environments and characteristics can be sold for similar prices, the real estate valuation can be immensely affected by the real estate market that does not provide a reasonable balance between demand and supply.

Highest and best usage: This can easily said to be a very important concept of successful real estate investing tips. The highest and best possible use of the property can provide a higher return as opposed to the current use. In simple terms, when it is possible legally, appropriately compatible, financially viable and physically possible for the modification of property, its value is definitely going to increase.

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