The valuation of real estate as it is practiced often refers to the notion of value rather than price. The purpose of this study is to show that these two notions have coexisted for a very long time in the economic literature and that it is therefore perfectly logical that the methodologies used to coexist for a very long time in the economic literature and that it is therefore perfectly logical that the methodologies used for valuation refer to them. Thus, we are led to Thus, we are led to study the different techniques of real estate appraisal, with their advantages and disadvantages. It seems that we have moved insensitively from empirical methods of appreciation to methods derived from financial theory. The hedonic method, however, escapes this classification insofar as inspired by the new consumer theory, it values a building, not in its entirety, but element by element.
Traditionally, real estate is valued based on appraisals performed by professionals by professionals at the time of a transfer for valuable consideration. But two possibilities are to be considered: either it is a property which must be the object of an immediate transaction, or it is the or it is the valuation of a building which is part of a patrimony which will be kept in its as is.
Table of Contents
- REAL ESTATE VALUATION METHODS
REAL ESTATE VALUATION METHODS
By comparison (or market method):
The method known as “by comparison” consists of deducing the value of a property from the analysis of the price obtained from the recent sale of other properties that are as similar as possible in terms of consistency, condition and location, referred to here as “references” or “points of comparison”. This method is divided into sub-methods: “ground + construction” which consists of carrying out the same exercise by breaking down the value of the ground and the value of the construction, “built integrated ground” by considering a global value unit integrating part of the land on which the construction is built, and “by statistical regression” which is an old and proven mathematical formulation that is very much in use.
By capitalization (or financial method):
The so-called “capitalization method” consists of capitalizing or discounting an annual income, whether it is a recognized rent (occupied property) or a rental value (vacant property), a gross income or a net income, to arrive at a market value. The method is based on the observation that the value of the property is related to the income it provides (or can provide). This method uses a rate of capitalization or return, which represents the return on money.
By cash flow :
This method, known as “cash flow discounting” or “DCF” for short, consists of estimating the asset according to its future and its expected income and expenses. This method of Anglo-Saxon origin is now common at the European level and is linked to the IFRS accounting standards.
By replacement cost:
The “replacement cost” method consists of reconstituting the cost price of the asset, deducting any depreciation for obsolescence. This method is not widely used for market value. It is more frequently used for very specialized assets or to define utility or operating values.
Past value method :
This is likely to be the best way to value long-held property. It is a question of determining the current market value, “starting from an expressed price, or an evaluation attributed (…) on the occasion of a transfer or in a previous legal act”, explains the administration. Beware, the latter does not hide its distrust of this method, and will only accept it if certain conditions are met: On the one hand, the tax authorities the collection of “a significant number of comparison elements likely to reveal a price evolution. On the other hand, these elements must not have undergone significant changes between the two periods under consideration: at the level of the property itself, but also of its economic environment (such as the arrival of a transport service, for example). Important: It is important to know that the choice of one or the other of these methods does not necessarily mean that the taxman will validate them without counting. Surrounding yourself with a professional is therefore a guarantee of security during this complex operation, which requires extensive knowledge of the sector.