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INTERNATIONAL CONSULTING AND ENGINEERING SERVICES
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INTERNATIONAL CONSULTING AND ENGINEERING SERVICES
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| Roaring Brook Consultants, Inc. |
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TYPES OF VALUE
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Market Value Market value of a piece of real estate means the equivalent amount of money that could be reasonably expected in exchange for transfer of the rights of ownership of the real estate. |
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Presumed within the definition are an objective determination of value and freedom of the contracting parties to set terms of sale in a free and open market. The price of purchase or price of sale will be determined by contractual terms between the parties and can be influenced by subjective factors that cannot be easily generalized or considered in this value. In the determination of the most probable market value for a piece of real estate, one must consider diverse elements that can influence the value of the property. In the case of complexes or groups of real estate assets, we can provide an opinion of value, whether it is presumed that the sale of the assets will be as a group or block, immediately available for use, or split up into individual lot or parcels. To determine market value the comparable sales method is used. This method is well recognized in appraisal practice. The comparable sales method postulates that the monetary value of an asset can be determined by comparison of that asset with other assets of similar nature which have been recently sold or exchanged in the same market or offered for sale in a similar market. |
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The essential conditions for estimating the value of real estate are the following:
Regarding condition a), an accurate inspection of the property being appraised must be conducted to determine possible allowable uses, the type of finishes present, and its state of repair. Regarding condition b), market studies and research must be conducted, keeping in mind as reference points the possible uses and characteristics of the property being appraised. One must obtain prices both in the specific market and in competing markets for real estate having the same characteristics and possible allowable uses as the property being appraised. Regarding condition c), it is necessary to consider that the value can be influenced significantly by the reasons for requesting the appraisal the time set for the conclusion of the transaction. |
The appraisal procedure makes direct comparisons based on three necessary conditions:
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Market Value of Development Rights The market value of a developable area or parcel, based on "transformation analysis", is derived from the difference between the market value of developed and undeveloped property by comparing the developed property with undeveloped property and considering the costs of development and construction. The market value of development rights is one of the economic aspects of a piece of real estate and therefore when a parcel has development potential, the development rights can be valued and transferred in the marketplace separately from the underlying parcel. In this particular area of economic activity, the rights to create development is an economic asset in the process of development and its value is therefore dependent on the final product and the cost of production of the product. With regard to the value of development rights, the value is established by considering the development that could be done by an entrepreneur of typical skills. The "typical" or "ordinary" entrepreneur is an entrepreneur or developer of normal technical and administrative capabilities who could produce the given asset at a cost equal or near to the cost that would be sustained by the majority of developers. If a development were not "ordinary" it would allow room for extra or surplus profits. In fact, by definition the typical developer earns the true or "pure" market value from the development. To obtain an estimate of development value it is necessary to develop a cash flow analysis, discounted to current value, considering the time necessary for development, development costs, expected profits and the timing of expenses and income. |
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Keith T. Kallberg, P.E., General Manager Roaring Brook Consultants, Inc. 15 Sewall Road South Berwick, ME 03908 Toll Free: 877-722-2643 Fax: 207-384-5383 |
