Valuation and Market Analysis
This topic covers value principles, the three appraisal approaches, forms of depreciation, and the comparative market analysis.
Approaches to Value
The sales comparison approach adjusts comparable sales; the cost approach adds land value to depreciated replacement cost; and the income approach capitalizes net operating income (NOI divided by cap rate) and is primary for investment property. Value principles include substitution, supply and demand, highest and best use, and anticipation.
Depreciation and the CMA
Appraisers recognize three forms of depreciation: physical deterioration (wear and tear), functional obsolescence (outdated design), and external or economic obsolescence (negative outside factors like a nearby landfill). A comparative market analysis (CMA) is a licensee's opinion of value from comparable listings and sales to guide pricing; it is not a certified appraisal, which requires a licensed appraiser under USPAP.