i. Valuation Fundamentals

Valuation fundamentals describe the principles and methods used to estimate the economic value of real estate assets. These concepts provide a common framework for pricing, investment analysis, lending decisions, and risk assessment across markets and asset types.

Appraised Value

An opinion of value provided by a qualified appraiser based on market data and recognized valuation methods.

Capitalization Rate (Cap Rate)

A valuation metric calculated by dividing net operating income by property value, commonly used to estimate pricing.

Cost Approach

A valuation method estimating value based on the cost to replace or reproduce an asset, less depreciation.

Depreciation

The reduction in value due to physical wear, functional obsolescence, or external factors.

Fair Market Value

The price at which a property would trade between willing buyers and sellers under normal market conditions.

Highest and Best Use

The most economically productive use of a property that is legally permissible and physically feasible.

Income Approach

A valuation method based on the present value of future income streams generated by a property.

Market Value

An estimate of value based on current market conditions, comparable transactions, and investor expectations.

Replacement Cost

The estimated cost to construct a property with equivalent utility at current prices.

Sales Comparison Approach

A valuation method that derives value by comparing similar properties that have recently sold.

Valuation Assumptions

Inputs and expectations used in valuation models, such as rent growth, expenses, and market conditions.