Market Comparison Approach (MCA)
Based on the estimate, the real estate value depends on the purpose required. The assessor must therefore not only know its purpose, but to provide processing quality, he must follow an appropriate, necessary standardization of the processes, which in association with adequate professional training, will allow to find solutions already tested to overcome stochastic estimation problems (complex and random) while raising the overall quality of the estimate. The Market Comparison Approach (Market Comparison Method) is operationally structured through a series of consequent operations: Market analysis for the detection of recent contracts by market segment; Collection of complete real estate data; Choice of real estate characteristics (elements of comparison); Compilation of the data table (sales summary grid); Marginal price analysis (adjustment); Preparation of the evaluation table (sales adjustment grid); Evaluation summary (reconciliation) and presentation of results.
This method can be used both in the aforementioned classic formulation, and in the version called “appraisal system”, which allows you to deal with the comparison between properties with features with a marginal price that cannot be immediately found on the market. The two operating methods have been implemented both by the Code of Real Estate Valuation, and by the Guidelines for the evaluation of properties under guarantee in credit exposures managed by the ABI (Italian Banking Association).
Income Approach (IA)
The Income Approach (Financial Capitalization Method) includes income capitalization methods that reach market value considering the ability of properties to generate monetary benefits. The income capitalization process is based on the transformation of a property’s income into capital value through the capitalization rate. The procedure for capitalization of income is articulated through: direct capitalization method; yield capitalization method; discounted cash flow analysis. The direct capitalization method converts the income of a property directly into the market value, dividing the annual income by a capitalization rate, or multiplying it by a factor.
Cost Approach (CA)
The Cost Approach is the cost-based estimation process. This approach allows the determination of the value of a property through the quantification of the value of the built land and the cost of reconstruction of the building (possibly depreciated), based on the economic principle of the optimization for which an economic entity (buyer) makes its choices driven by the maximization of a certain objective function, for which it is not willing to pay for a property a greater sum of the value of the building land and the construction cost of another building that has identical functional utility as the existing one, considered in its state of ‘use. The estimation process includes three components: the market value of the built land, the cost of rebuilding, the depreciation. Contact us for a free evaluation, we at AAAC (Real Estate Agency in Rome), we will be happy to answer you.