- Cost Approach
- Income Approach
- Market Data Approach
Cost Approach
The total market value of the land or site, assumed vacant, and the depreciated replacement or reproduction costs of the improvements. Depreciation from three sources: physical deterioration, functional obsolescence, and economic obsolescence - is deducted from the current cost of replacing an improvement to arrive at the estimate of depreciated replacement cost or reproduction cost. Reproduction cost, consider the cost of the price now, which is needed to make a replica of the object by using the assessment materials, construction standards, design, lay out, and the quality of the same object, and Replacement cost, consider the cost with the price now, which is needed to make an assessment of the object with the use of materials, construction standards, design, lay out, and the quality of the same object.
- Cost Approach can be applied as an approach in the assessment, with the following criteria: Application of Market Data Approach or Income Approach can not be done with the object. Could be the following: the object is a special-purpose property, the property is new or was completed, the object is still in the planning or construction phase renovation, the object is not in selling at the market.
Income Approach
The measure of the present worth of the future anticipated benefits (income and property reversion) derived from the property. This conversion of anticipated benefits is accomplished by discounting the net operating income cash flows for a specific holding period and the reversion, at a specified discount rate. In certain cases the capitalization of a single year's net income expectancy, or an annual average of several years’ net income expectancies, by a market derived capitalization rate will be deemed appropriate. Under certain circumstances this single year's capitalization of net income is considered to be a unit of comparison, and therefore best reflects the sales comparison approach.
- Income capitalization Approach can be applied, if the property produces income, it requires some conditions are: Valuer obtain financial data about the property, obtain a comparison of similar data (approach) with the property, the projection of income operational to property, make adjustments on the financial reports property as well as benchmark data.
Market Data Approach
The subject property is compared to similar properties that have been sold recently or are in escrow. By applying appropriate units of comparison, and making adjustments based on the elements of comparison to the sale prices of the comparable sales, a determination of value can be ascertained directly from market data. Market Data Approach is used in assessing the market value of the land, where as the market value of the land is assessed based on the transaction in the vicinity by analyzing the comparable and carry out adjustments on factors affecting value, such as: shape, area and topography, timing of the transaction, location and its surrounding, land use and zoning, services in the vicinity, public transportation, Improvements made, future prospects, etc.
This approach is relevant when used to meet the following criteria:
- Can be applied if the data is similar enough in the vicinity of property available.
- Specification and quality of the property assessed, in accordance with the general standards that apply in the vicinity of the location.
- Data transactions that occur are actually in line with the market, not “the transactions have condition”, the interplay between the buyer and seller.
Based on the above, the market data approach is very appropriate / appropriate to the country or region / city that is quite advanced. Where the available data is sufficient available, the level of openness and the feeling of the transaction or the price is quite open and help each other. In other words, the legal system and legislation relating to the transaction data is very supportive. Meanwhile, the level of scrutiny and responsibility of the population / community, on the importance of the transaction data also support the government policy.
But what happens to the country which is very advanced and rich after September 2008 and sometime this crisis still ongoing? Financial crisis has been all over the world. Many doubt the reliability of market data approach. So really? When, this crisis occurred, if the size of the price or decrease in the number of transactions from the previous? If the previous transaction data, is much higher compared with the transaction (when the observation), most likely, the market data approach is less precise in the application.
This is the alleged author, we expect comments from readers
