Market Valuation (Residential)

Question 1

Assumptions of Valuation

For market price

Answer 1

1. This is a free open market
2. Neither party is overly anxious to buy or sell the property because of special or extraordinary reasons
3. The parties are ‘at arms length’ (ie not related or associated in someway)
4. Both parties are willing and able to do business on a given day

Question 2

Factors that influence value of property

Answer 2

1. Usefulness of the property to buyer/prospective buyer
2. Scarcity of property
3. Market demand and supply

Question 3

Direct Comparison Method of Valuation

Answer 3

1. Inspect the subject property
2. Find and inspect suitable comparable properties in the same or similar areas
3. Find and inspect comparable properties which remained unsold for a relatively long period
4. Compare the subject property with other comparable properties
5. Make adjustments to the sale prices of comparable properties
6. Estimate that market value of the subject property

Question 4

Cost Method Valuation

Answer 4

Market value = construction cost minus depreciation plus market value of land.

MV = CC - D + ML

Question 5

Procedure with Cost Method Valuation

Answer 5

1. Estimate the present cost of replacing the existing improvements
2. Depreciation is calculated by making a deduction from the new construction costs (arbitrary)
3. The cost of purchasing a vacant piece of land similar to the subject property must be estimated and added to depreciated construction costs (limited info)

Generally rejected for how abritrary and innnacruate the method can be

Question 6

Factors Affecting Demand and Supply

Answer 6

1. Disposable Income
2. Availability of Credit
3. Taste and Preference
4. Population