Sales comparison method
It is carried out by selection of analogical objects and entering corrections into their prices, taking into account the differences from the evaluated object. The method is used to estimate undeveloped land plots or land plots considered as unfinished. To use the method, you need information about the sale prices of land plots that are analogues of the land plot being valued.
It is based on the principles of balance and proceeds from the assumption that there is some typical relationship between the value of the land and the value of the property as a whole. The method is used when the following data are available on the relationship between the cost of land and the value of buildings (structures):
1) the cost of built-up areas and the share of the cost of land in the total cost of built-up areas are known;
2) the total cost of built-up areas and the share of improvements in the cost of built-up areas are known;
3) the cost of improvements and the proportion of improvements in the total cost of built-up areas are known.
One of the main disadvantages of this method is the difficulty in determining the share of land value in the total value of real estate. This share can depend on a sufficiently large number of factors: the type of real estate, the location of the plot, the area of its construction, the age of buildings (structures), their number of storeys, etc.
The method can be recommended for assessing the market value of land with a lack of information on sales of free land parcels or as a verification method in the presence of estimates obtained by other methods.
It is used to determine the value of land as part of a single real estate object - a land plot with improvements on it and consists in subtracting the market value of improvements from the cost of a single real estate object - a land plot with buildings and structures located on it. The main condition for the application of the method is the correspondence of the existing use of the land plot and improvements located thereon to its most effective use. Otherwise, a negative value can result. The main problem in using the method is to properly estimate the cost of improvements and take into account the principle of the most efficient use of land. Usually the cost of improvements is calculated by costly methods.
It is based on the principle of residual land productivity and consists in determining the income attributable to land and its subsequent capitalization. The method is used to estimate both free and fully built up land plots. At the same time, built-up land plots should be assessed as conditionally free for their most effective use.
The capitalization ratio for improvements is calculated as the sum of the discount rate and the factor of the reimbursement fund. As a coefficient of capitalization of income from the land, it is advisable to use the rate of return on capital.
Method of intended use
Like the residual method, it is based on the principle of residual productivity. Land evaluation by this method consists in the fact that in the process of its application the flow of costs associated with the development of the land plot and the expected revenues from the developed plot are modeled. The difference between these revenues and expenses, which is the income attributed to the land (residual income or rent), is consistently discounted at the valuation date with the aim of determining the value of the estimated rights to the land plot. One of the options for applying the method of proposed use for land evaluation (free land plot) is the method of splitting into plots if their development and subsequent sale is considered to be the most effective type of land use.
This method can also be used to estimate the investment value of land and any natural facility (for example, a deposit, a piece of forest land, etc.), i.e. of the cost at which the income from the acquisition of a land plot corresponds to the rate of interest established by the investor or the value that meets the investor's requirements for the profitability of a particular project.
It is believed that this method of assessing the market value of land is appropriate to use in cases where there is no data on sales of unfinished land, but there are data on the prices for the sale of built-up areas or objects located on them.
The method of capitalization of land rent is the capitalization of land rent, which in the theory of real estate valuation is usually used for rent for land, and in the theory of economic valuation of natural resources - any income from economic use of a natural object. In the absence of an investment market, a doubled risk-free rate is recommended as the capitalization rate.
Reconciliation of land value estimates
Harmonization means the process of obtaining a common opinion or achieving a single result based on common requirements. In estimating the market value, the agreement is the final stage, during which the value of the values obtained by different methods is selected from the value values. In domestic regulatory documents, this process was called the "generalization". However, in the literature on evaluation, the most common term more appropriate to the meaning of this procedure is the term "reconciliation".
When selecting the final cost value, the purpose and purpose of the evaluation, the applicability of one or another valuation method used for this purpose and the given type of the valuation object, as well as the reliability and reliability of the information used in applying this or that method are taken into account. If all methods are equivalent in terms of compliance with the behavior of market participants, the market value indicator is calculated as the average or weighted average value.
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