Real estate appraisal methods are the processes of estimating real estate prices subject to appraisal at a specific time. The evaluation method is determined according to the type of property and the purpose of evaluation. Among the most important purposes of evaluation are:
List real estate funds in the Capital Market Authority.
Tax fees.
Endowments.
Settle disputes and partnerships.
Public auctions.
Real estate portfolios.
Buying and selling.
Mortgage.
Finance and real estate loans.
Real estate investments.
Zakat and taxes.
Insurance.
Top and best use studies.
Rental value.
Accounting and legal purposes.
Others.
There are several methods of real estate appraisal, and in this article we will review the most important and common ones:
• Market method - method of comparisons.
• Cost Method - Contractor's Method (Cost).
• Income method - investment method.
Comparisons method:
This method relies on current market prices to sell other real estate similar to the real estate under appraisal, whether it is sold or offered for sale. A comparison is made between these real estate and the real estate to be evaluated, provided that the real estate is similar and in the same area or neighborhood, and that it is close in its specifications and uses to the real estate to be evaluated. There are important points to take into consideration
Consideration when comparing properties in the same area for the purpose of evaluation, including: (location, proximity and distance from the main street, or from the city center, urban centers, ease of access to the site, area, facade length and its ratio to depth, as well as the general shape of the plot of land, soil quality, licenses available from the competent local authorities, the type of title deed, the absence of judicial disputes, the age of the building, the type of construction, the internal and external finishes, and the number of floors) This method is most often used to evaluate residential real estate (houses and apartments).
Contractor's method (cost):
The depreciation method is based on estimating the price of the land and the cost of rebuilding a property similar to the one under evaluation - taking into account the contractor's profits. Then reduce the percentage of time obsolescence or depreciation of the building, taking into account the maintenance and improvements that were made to the building during the occupancy periods.
(The value of the property = the price of the land + the cost of construction with the profits of the contractor - the statute of limitations)
Perhaps this method is the best when evaluating real estate units for new projects, and then we do not need to calculate the aging time for them.
Investment method:
This method is based on calculating the value of the annual income that is collected from the property subject to evaluation. Whether gross income or net income after subtracting maintenance and operating fees and taxes. After calculating the income, the price of the property is evaluated according to the percentage - capitalization rate - applicable in the area of the property. For example, if the amount of a percentage - the capitalization rate - in the real estate area is ten percent, then the value of this real estate will be equal to the income obtained from the real estate مقسوم The capitalization rate is mostly based on the net income to calculate the value of the property in this method. It is also possible to use the value of the gross income, especially in areas where real estate prices are high. This method of real estate evaluation is commonly used in real estate for the purpose of investment.