The process of determining a property's market value using one or more standardized methods.
Property valuation is the practice of estimating what a property is worth in the open market. The three main approaches are the sales comparison approach (comparing recent sales of similar properties), the income approach (using NOI and cap rates), and the cost approach (estimating replacement cost minus depreciation). Lenders, investors, and appraisers use these methods to set prices.
You're evaluating a 4-unit apartment building. Recent sales of similar 4-units in the area suggest a value of $600,000 (sales comparison). The building generates $48,000 in annual NOI; at the local 8% cap rate, this implies a value of $600,000 (income approach). Both methods agree, giving confidence in the valuation.
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A property's annual net operating income as a percentage of its purchase price.
Recent sales of similar properties used to estimate a target property's market value.
The estimated market value of a property after planned renovations and repairs are completed.
The increase in a property's market value over time.
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