Valuation and Market Analysis
This topic covers value principles, the three appraisal approaches and when each applies, and the comparative market analysis.
Principles and Adjustments
Market value is the most probable price in an open, competitive market. Principles include substitution, supply and demand, highest and best use, anticipation, and contribution (a feature adds value based on its effect on the whole, not its cost). Appraisers use contribution when adjusting comparable sales for differences such as extra lot size or an additional bathroom.
The Three Approaches and the CMA
The sales comparison approach adjusts comparable sales and is primary for homes. The cost approach (land value plus depreciated replacement cost) suits new or special-purpose properties without comparables. The income approach capitalizes net operating income for investment property. A comparative market analysis is a licensee's opinion of value to guide pricing, not a certified appraisal, which must follow USPAP.