Valuation and Market Analysis
This topic explains the principles of value, the three appraisal approaches, and how licensees use a comparative market analysis to advise clients on price.
Principles of Value
Market value is the most probable price in a competitive, open market. Core principles include substitution (a buyer pays no more than for an equal substitute), supply and demand, anticipation (value based on expected future benefits), conformity, and contribution (the value a component adds). Highest and best use is the legally permissible, physically possible, financially feasible, and maximally productive use.
The Three Approaches and the CMA
The sales comparison approach adjusts recent comparable sales; the cost approach adds land value to the depreciated cost to rebuild; and the income approach capitalizes the income an investment property produces. A comparative market analysis (CMA) is a licensee's opinion of value based on comparable listings and sales to guide pricing. It is not an appraisal, which must be performed by a licensed appraiser under USPAP.