I would like to start by wishing everyone a happy new year - may it be filled with good health, happiness and prosperity.
With the start of the new year, one of my professional goals was to complete a course to gain more real estate related knowledge and training. As part of that goal, I am currently enrolled in Principals of Real Estate Appraisals through the Manitoba Real Estate Association. The main focus of the course is learning and applying three main methodologies of real estate valuation for appraisal purposes.
1. Cost approach - establishes a valuation based on current land value together with building value; this method breaks down various valuation components into items such as replacement cost and accrued depreciation.
2. Direct Comparison Approach - this approach establishes market value by analyzing both fixed and variable components of the real estate market. Fixed component is data which relates to current active and sold inventory of properties; comparable properties must be truly comparable to the subject property in every aspect including the neighborhood and its amenities. A variable component refers to items such as a person's motivation for selling or buying, current interest rates, and a host of other information which may be difficult to ascertain but can be of great assistance when interpreting real estate statistics.
3. Income Approach - this methodology is most useful to individuals who like to invest in revenue properties, commercial or industrial real estate. It focuses on gross and net operating expenses for both subject and comparable property. Various rules are put in place which govern the process of reconstructing an operating statement, establishment and use of capitalization rates as well as other tools which assist me in forecasting cost and profit.
The execution of all three methods of valuation focus on knowing and understanding rules and regulations which govern each approach, as well as working knowledge of mathematical formulas which enable me to arrive at appropriate reflections of the market.
Being a detail-oriented numbers person, I am enjoying the in-depth analysis of each methodology as it affords me a greater understanding of the market and the various "moving parts" which are always part of the valuation process. As my favorite saying goes...'the opportunity is always in the numbers"
As we approach the spring market, be sure to look for an agent who not only appreciates numbers but also has the ability to interpret them for you correctly while taking into account your personal needs.