The main approaches to the valuation of real estate (cost, income, comparative). Basic approaches to property valuation Basic approaches to real estate valuation

Shestakova E. V., expert of LLC “Auditing firm “BUSINESS STUDIO”

For a long time, there were no mandatory requirements for the assessment of real estate objects. Each appraiser actually had his own judgments and used those methods in real estate appraisal that are closer to him. However, recently the Ministry of Economic Development of Russia, in its order of September 25, 2014 N 611, established the Federal Valuation Standard "Real Estate Appraisal (FSO N 7)".

General approaches to real estate appraisal

In accordance with Art. 5 of the Law of the Russian Federation No. 135-FZ “On valuation activities” “the objects of valuation include the right of ownership and other real rights to property or certain things from the composition of the property”, i.e. the purpose of the appraisal is primarily to determine the value of the right. Determining the market value is built on the premise that the property is sold on the market, so it should be assessed, first of all, the property. Of course, it happens that appraisers make a special value appraisal or some other appraisal. However, most often it is necessary to evaluate the market value.

Market value - Under the market value, in accordance with the Law of the Russian Federation "On appraisal activities in Russian Federation» of July 29, 1998 135-FZ, is understood as the most probable price at which this object of appraisal can be alienated on the open market in a competitive environment, when the parties to the transaction act reasonably, having all the necessary information, and any extraordinary circumstances are not reflected in the value of the transaction, that is :

one of the parties to the transaction is not obliged to alienate the object of assessment, and the other party is not obliged to accept the performance;

the parties to the transaction are well aware of the subject of the transaction and act in their own interests;

the object of evaluation is presented on open market in the form of a public offer;

the price of the transaction is a reasonable remuneration for the object of assessment, and there was no coercion to complete the transaction in relation to the parties to the transaction by anyone;

payment for the object of assessment is expressed in monetary terms.

General approaches to the valuation of real estate objects were defined back in 2007 in the order of the Ministry of Economic Development of the Russian Federation of July 20, 2007 N 256 (as amended on October 22, 2010) "On approval federal standard ratings" General concepts assessments, approaches to assessment and requirements for assessment (FSO N 1)".

The assessment should describe:

a) the object of assessment;

b) property rights to the object of assessment;

c) the purpose of the assessment;

d) the intended use of the evaluation results and the associated limitations;

e) type of value;

e) date of assessment;

g) the timing of the assessment;

h) the assumptions and constraints on which the estimate is to be based.

Also, during the assessment, an analysis of the best use of the property is carried out. In practice, analysis optimal use The property is identified by checking that the use cases under consideration fit the following categories:

be physically possible, i.e. correspond to the resource potential;

be legally permissible, i.e. the duration and form of the intended use must not be subject to legal restrictions, existing or potential;

be financially wealthy, i.e. use must provide income equal to or greater than the amount of operating expenses, financial obligations and capital costs;

be as efficient as possible, i.e. to have the highest productivity among the use cases, the probability of which is confirmed by the market.

In terms of real estate valuation, it is very important that this standard establishes the approaches that an appraiser should use when performing an appraisal.

Table

Approaches to real estate valuation

It is important that if the appraiser does not use any approach in the assessment, he must justify this.

Also, the valuation report should contain comparisons of the value determined using different approaches.

In real estate appraisal, it is very important to use the cost approach.

Using cost approach it is important to calculate in actual prices the costs of recreating a similar object. It is also important to consider that the cost of new construction, in addition to direct costs, includes the profit of the entrepreneur. Entrepreneurial Profit (EP) is a market-determined amount that reflects the amount that the entrepreneur expects to receive in the form of a premium for the use of his capital invested in construction project. The entrepreneur's profit is mainly a function of risk and depends on the specific market situation.

The cost is equal to: the cost of new construction + the profit of the entrepreneur

1,331,712+239,708=1,571,420 rubles

Determining the amount of physical wear

Table

Built-in cost non-residential premises, determined by the cost approach, is (rounded):

RUB 1,285,422

One million two hundred eighty-five thousand four hundred twenty-one rubles

This approach is based on the premise that the value of any property depends on the amount of income that it is expected to bring. When applying this approach, the ability of the property to generate a certain income is analyzed, which is usually expressed in the form of rental income from the operation and income from the sale of the property at the end of the holding period. The income method includes two main techniques - the direct capitalization technique and the discounting technique.

Determination of the market value of non-residential premises with an area of ​​42.3 sq.m using the income approach.

Table for calculating the value of real estate using the discount method cash flows

Thus, the cost of the object, determined by the income approach, is (rounded): 1,084,000 rubles.

As part of the comparative approach, the sales comparison method was used. When applying this method, the value of the Property is determined by comparing the sale price of similar properties. The basis for applying this method is the fact that the value of the Property is directly related to the sale price of similar properties. Each comparable sale is compared to the property being valued. The comparable selling price is adjusted to reflect significant differences between the two.

To determine the final result of the market value of 1 sq.m. of the object being evaluated, we find its weighted average value, while the result obtained with smaller adjustments is assigned the greatest weight.

Table

Thus, the weighted average value of the market value of 1 sq.m. total area of the assessed Object is: 31,701 rubles.

thirty-one thousand seven hundred one ruble

The cost of the Object, determined by the market approach, is (rounded): 1,347,000 rubles.

One million three hundred forty-seven thousand rubles

Depending on the amount and reliability of the information used in each of the approaches, the results of these approaches may differ to a greater or lesser extent from each other.

The choice of the final value of the cost is based on several intermediate results. To determine the final cost estimate, as a rule, the weighted average method is used, in accordance with which the result of each of the approaches is assigned a weighting factor.

Taking into account three approaches, the cost of the object is:

1,285,422 + 1,084,000 + 1,347,000 = 3,716,422 rubles

The average is: 1,238,807 rubles

When using assessment approaches, it is important to consider the following guidelines.

Cost approach

Restoration costs must be taken into account full cost real estate object, while the prices must be current, taking into account the correction factors.

When using the cost approach, it is important to take into account the depreciation of buildings and structures.

income approach

In use income approach in real estate appraisal it is important to use a discount rate that takes into account real income, often when assessing, overestimated discount rates are used, as a result of which the appraisal cost is overestimated.

Comparative approach

In the comparative approach, it is important to use as many analogous options as possible, of course, we are not talking about dozens of options, but the use of two or three options will not give a positive effect when evaluating comparative approaches. Secondly, analogues must be similar, that is, located in the same area, have the same characteristics of a house, building, structure, be located at the same distance from the metro or transport hubs. Otherwise, correction factors will need to be taken into account.

It is also important to take into account the new requirements for the assessment of real estate.

New requirements for real estate valuation

Let's list these requirements.

First, the appraiser without fail should inspect the object of assessment. . If an inspection is not carried out, the appraiser shall indicate in the valuation report the reasons why the subject property was not inspected, as well as the assumptions and restrictions associated with the failure to conduct an inspection.

Second, joint evaluation land plot and the objects on it capital construction in the absence of title and title documents for a land plot, it is carried out taking into account the rights and obligations of the owner of capital construction objects in relation to the land plot established by the current legislation.

However, it is important to remember that illegal structures can be demolished, subject to legal requirements. A person who has carried out unauthorized construction shall not acquire the right of ownership to it. It has no right to dispose of the building - to sell, donate, lease, make other transactions. Unauthorized construction is subject to demolition by the person who carried it out or at his expense (Article 222 of the Civil Code of the Russian Federation). In the definition Constitutional Court RF dated 06/24/2014 N 1369-O states that the obligation to demolish an unauthorized building is a sanction for an offense, as provided for in Art. 222 of the Civil Code of the Russian Federation. A similar conclusion was made in the ruling of the Constitutional Court of the Russian Federation of January 17, 2012 N 147-O-O, the court indicated that the obligation to demolish an unauthorized building is a sanction for a committed offense, which may consist in violation of both norms land legislation regulating the provision of land for construction, and town planning norms governing design and construction.

However, this feature is not actually taken into account in the new real estate appraisal standard.

Thirdly, the standard establishes additional information which must be specified in the description of the property.

The description must include:

The composition of the object of assessment, indicating information sufficient to identify each of its parts (if any);

Characteristics of the appraisal object and its evaluated parts or links to documents available to the appraiser containing such characteristics;

The rights taken into account when assessing the appraisal object, restrictions (encumbrances) of these rights, including with respect to each of the parts of the appraisal object.

The assessment task may contain other calculated values, including:

market rent (calculated sum of money for which the property can be leased at the valuation date under typical market conditions);

Costs for the creation (reproduction or replacement) of capital construction projects;

Losses (actual damage, lost profit) in case of alienation of the property, as well as in other cases;

Expenses for the elimination of environmental pollution and (or) land reclamation.

Fourthly, the requirements for market analysis during the evaluation are established.

Real estate market analysis is performed in the following sequence:

a) analysis of the impact of the general political and socio-economic situation in the country and region where the appraisal object is located on the market of the appraised object, including trends that have emerged on the market in the period preceding the appraisal date;

b) determination of the market segment to which the property being valued belongs. If the real estate market is not developed and there is not enough data to give an idea of ​​the prices of transactions and (or) offers with comparable real estate objects, it is allowed to expand the study area at the expense of territories similar in economic characteristics with the location of the assessed object;

c) analysis of actual data on the prices of transactions and (or) offers with real estate objects from market segments, to which the object being evaluated can be attributed in the actual, as well as in alternative options for its use, indicating the range of price values;

d) analysis of the main factors affecting the demand, supply and prices of comparable real estate, such as rates of return, payback periods of investments in the real estate market, with the intervals of values ​​of these factors;

e) the main conclusions regarding the real estate market in the segments necessary for the assessment of the object, for example, market dynamics, demand, supply, sales volume, market capacity, motivation of buyers and sellers, liquidity, price fluctuations in the market of the object being evaluated and other conclusions.

Previously, there were no requirements for the sequence of such an analysis. Therefore, if the analysis is not carried out in the established sequence, then it is necessary to indicate the reasons for the corresponding discrepancies.

Fifth, the requirements for the analysis of the most effective use.

Analysis of the most efficient use of the object of assessment is carried out, as a rule, according to space-planning and constructive solutions. For objects of appraisal, including a land plot and capital construction facilities, the most efficient use is determined taking into account the existing capital construction facilities. At the same time, such an analysis is carried out by carrying out the necessary calculations for this or without them, if justifications are presented that do not require calculations.

The analysis of the most effective use was previously present in the reports of the appraisers, but now the requirements for such a report are more specific.

The sixth feature is the establishment of requirements for a comparative approach.

When applying a comparative approach to real estate valuation, the appraiser takes into account the following provisions:

a) a comparative approach is used for real estate valuation, when it is possible to select a sufficient number of similar objects with known transaction and (or) offer prices for valuation;

b) real estate objects are used as analogue objects that belong to the same market segment as the object being evaluated and are comparable with it in terms of pricing factors. At the same time, for all real estate objects, including the one being assessed, pricing for each of these factors should be uniform;

c) during the assessment, the volume of market data available to the appraiser about objects-analogues and the rules for their selection for calculations should be described. The use in the calculations of only a part of the analogous objects available to the appraiser must be justified in the appraisal report;

d) to perform calculations, specific cost indicators (comparison units) typical for a similar object prevailing on the market of the evaluated object, in particular, the price or rent per unit of area or unit of volume, are used;

e) depending on the initial information available on the market, qualitative valuation methods can be used in the real estate valuation process (relative comparative analysis, method expert assessments and other methods), quantitative assessment methods (regression analysis method, quantitative adjustment method and other methods), as well as their combinations.

All these criteria must match when evaluating analogue objects.

The seventh feature is related to the income approach to valuation.

a) the income approach is applied to the valuation of real estate that generates or is able to generate income streams;

b) within the framework of the income approach, the value of real estate can be determined by the direct capitalization method, the discounted cash flow method or the capitalization method according to calculation models;

c) the direct capitalization method is used to evaluate real estate objects that do not require significant capital investments to their repair or reconstruction, the actual use of which corresponds to their most efficient use. Determining the value of real estate objects using this method is carried out by dividing the annual income from the object corresponding to the market by the total capitalization rate, which is determined on the basis of an analysis of market data on the ratio of income and prices of real estate objects similar to the object being valued;

d) the discounted cash flow method is used to evaluate real estate that generates or is able to generate income flows with an arbitrary dynamics of their change over time by discounting them at a rate corresponding to the return on investment in similar real estate;

e) the calculation model capitalization method is used to evaluate real estate that generates regular income streams with the expected dynamics of their change. The capitalization of such income is carried out according to general rate capitalization constructed on the basis of a discount rate taken into account the return on capital model, methods and conditions of financing, as well as expected changes in income and property value in the future;

f) the structure (accounting for taxes, return of capital, rate of change in income and asset value) of the used discount rates and (or) capitalization must correspond to the structure of the discounted (capitalized) income;

g) for real estate that can be rented out, rental payments should be considered as a source of income;

h) the valuation of real estate intended for the conduct of a particular type of business (for example, hotels, restaurants, gas stations) can be carried out on the basis of information about operating activities this business by separating from its value components that are not related to the property being valued.

The eighth feature is the establishment of requirements for the cost approach.

When applying the cost approach, the appraiser takes into account the following provisions:

a) the cost approach is recommended to be applied to the valuation of real estate - land plots, built up with capital construction projects, or capital construction projects, but not their parts, for example, residential and non-residential premises;

b) it is advisable to use the cost approach for real estate valuation if it corresponds to the most efficient use of the land plot as undeveloped and it is possible to correctly assess physical deterioration, as well as functional and external (economic) obsolescence of capital construction objects;

c) the cost approach is recommended to be used when the market is low, when there is not enough data necessary to apply the comparative and income approaches to valuation, as well as to valuate real estate for special purposes and uses (for example, linear facilities, hydraulic structures, water towers, pumping stations, boiler houses , engineering networks and other real estate for which market data on transactions and offers are not available);

d) in general, the value of the property, determined using the cost approach, is calculated in the following sequence:

determination of the cost of rights to a land plot as undeveloped;

calculation of costs for the creation (reproduction or replacement) of capital construction facilities;

determination of the entrepreneur's profit;

determination of wear and obsolescence;

determination of the cost of capital construction objects by summing up the costs of creating these objects and the profit of the entrepreneur and subtracting their physical wear and tear and obsolescence;

determination of the value of a real estate object as the sum of the value of rights to a land plot and the value of capital construction objects;

e) for the purposes of determining the market value of a real estate object using the cost approach, the land plot is assessed as undeveloped on the assumption of its most efficient use;

f) calculation of costs for the creation of capital construction facilities is made on the basis of:

Data on construction contracts (contracts) for the construction of similar facilities;

Data on the costs of construction of similar facilities from specialized directories;

Estimated calculations;

Information about market prices for Construction Materials;

other data;

g) the costs of creating capital construction objects are determined as the sum of the costs included in the construction and installation works, directly related to the creation of these objects, and the costs associated with their creation, but not included in the construction and installation works;

h) for the purposes of assessing the market value of real estate, the profit of an entrepreneur is determined on the basis of market information by extraction methods, expert assessments or analytical models, taking into account direct, indirect and imputed costs associated with the creation of capital construction facilities and the acquisition of rights to a land plot;

i) the amount of depreciation and obsolescence is defined as the loss of property value as a result of physical depreciation, functional and external (economic) obsolescence. At the same time, depreciation and obsolescence relate to capital construction objects related to the property being valued.

Thus, more specific requirements for real estate valuation are defined.

In conclusion, it should be noted that both appraisers and clients need to take into account both previously established approaches to valuation and new requirements for real estate valuation. For example, it is impossible to arbitrarily take the costs of creating capital construction projects; such data must be substantiated either by estimates or information in construction contracts. Clear criteria for the use of both income and comparative approaches are defined. And this means that clients should be more demanding about reports and appraisers should take into account as much as possible new standard. Moreover, it is important that arbitrage practice may also change to reflect new mandatory valuation requirements. Therefore, if some requirements are not taken into account, then there is an option to invalidate the report.

Depending on the variable factors, methods for estimating the value of housing can be divided in the following way: profitable, costly and comparative.

It must be pointed out that in a "perfect market" the use of each method should give the same result. Currently, none of the markets can be called perfect (supply and demand are not in balance, market participants have incomplete information, organizations do not function effectively, etc.). Thus, these methods may give different results.

In essence, the housing valuation methodology should take into account the structure of cash flows that are formed in the housing market, namely:

• cash flow, which is formed during the construction of real estate and its maintenance;
• cash flow, which is formed in transactions for the purchase and sale of housing;
• additional cash flow generated from the implementation of third-party services (for example, repair work);
• payment utility bills owner.

income approach

The income approach is most often applied to the valuation of a business. This method involves the calculation of the value of the organization based on its current value, expected future income and perceived risks. The income approach uses the discounted cash flow method. When evaluating residential real estate, this approach is most often used.

It is customary to distinguish between two types of cash flows. The first is formed by equity(the so-called cash flow for equity, eng. Equity Cash Flows, ECF). The second is formed from all invested funds (cash flow for all invested capital, English Capital Cash Flows, CCF). In both models, the cash flow can be calculated as nominal (in current prices) and real (adjusted for the inflation rate) depending on the purposes of the analysis.

The CCF model is used primarily in the assessment of organizations that carry out different kinds activities. For example, these can be: the extraction and sale of raw materials, the production of own products and their sale, the provision of logistics services. However, as Professor A.G. Gryaznova, in practice, the equity cash flow model is more popular, while the cash flow model of all invested funds, in her opinion, is less in demand for valuation Russian companies. This is due to the fact that organizations do not implement financing raising schemes similar to those used by companies in Western countries where this method was first introduced. Both methods are used to evaluate housing, due to the fact that it is possible to calculate the volume of all invested funds, since each residential property is perceived by the organization as another investment project.

Cost approach

The cost approach is also called the property approach. This is due to the fact that the value of a residential property can be considered taking into account the costs incurred.

Due to inflation, changes in market conditions, as well as the applied accounting methods book value assets and liabilities does not correspond to their market value. As a result, the valuation of residential real estate implies adjustments to indicators accounting.

At the initial stage, the market value of all assets and liabilities of the company is estimated. Further, the value of liabilities is subtracted from the fair market value of the assets. As a result of this action, assessed value organization's own capital.

Comparative approach

The comparative approach implies that the assessment of the current value of the company is the estimated amount of its sale in the formed market. In other words, the sale price of a comparable company, which is fixed by the market, is considered to be closest to the real price. Due to the presence in the housing market big number comparable properties, this method can be successfully used in assessing the value of residential real estate.

Determination of the cost of housing objective and independent market conditions is the main advantage of this approach. The task of the appraiser in this approach is only to make changes in order to ensure the comparability of residential real estate. At the same time, income and cost approaches to estimating the cost of housing are used exclusively on the basis of calculations.

Disadvantages of the Comparative Approach

At the same time, the considered approach is based solely on retrospective results and does not take into account the prospects for the development of the housing market, which can both positively and negatively affect the assessment. Also, the comparative approach requires an extensive database that analyzes the property and potentially comparable residential real estate from different sides. Collecting such data is extremely costly in terms of time, labor and financial resources. The use of a comparative approach is severely limited by the lack of universal assessment methods. This is due to the fact that the process of selecting comparable properties mainly involves the subjective judgment of the appraiser, as well as the implementation of the necessary changes. It should be noted that the comparative approach in general and the method of comparative coefficients in particular have not received due distribution in Russian practice due to the specifics of the market situation, which is characterized by incomplete information and insignificant observation periods.

In summary, it should be said that the use comparative method valuation of residential real estate is extremely difficult. Housing markets are subject to significant changes in the market conditions for fairly short periods of time, which imposes certain restrictions on the cost approach for those organizations whose fixed assets are generally formed on the basis of imported equipment and depend on large debt financing. In this case, a discrete cost calculation (e.g., on a monthly basis) may give substantially different values, making such valuation values ​​inconsistent. economic reality and complicates the formation of not only long-term, but also operational policy for cost management.

Output

Under these conditions, according to the author, the most reliable approach to assessing and managing the value of housing objects is the profitable one using the discounted cash flow method, where the weighted average cost of capital is used as the discount rate (calculated using A. Damodaran's methodology and the CAPM model). The horizon for calculating the net cash flow from the total capital should take values ​​no more than five years using the cost indicator in the post-forecast period. As a result of residential real estate appraisal, on the one hand, medium-term trends are taken into account, and on the other hand, the appraisal is not subject to short-term limiting fluctuations of indicators. housing market(because they have an insignificant effect on risk-free rates and default spread, which depends on credit rating developers.

1. Comparative approach

The comparative approach to valuation is a set of valuation methods based on comparing the object of valuation with its analogues, in respect of which there is information on the prices of transactions with them.

Conditions for applying the comparative approach:

1. The object must not be unique.

2. Information must be comprehensive, including the conditions for making transactions.

3. Factors influencing the value of comparable analogues of the property being valued must be comparable.

Basic requirements for analogue:

The analogue is similar to the object of assessment in terms of the main economic, material, technical and other characteristics;

similar terms of the deal.

The comparative approach is based on the principles:

substitutions;

balance;

Demand and supply.

Stages of the comparative approach:

Market research;

Collecting and verifying the accuracy of information on offered for sale or recently sold analogues of the appraisal object;

Comparison of data on selected analogues and the object of assessment;

Adjustment of sales prices of selected analogues in accordance with differences from the object of assessment;

Establishing the value of the appraisal object.

An adjustment to comparable sales is necessary to determine the final value of the property being valued. Calculation and adjustments are made on the basis of a logical analysis of previous calculations, taking into account the significance of each indicator. The most important is precise definition correction factors.

Advantages of the comparative approach:

1. The final cost reflects the opinion of typical sellers and buyers.

2. Sales prices reflect the change financial terms and inflation.

3. Statistically justified.

4. Adjustments are made for differences in the compared objects.

5. Relatively easy to use and gives reliable results.

Disadvantages of the comparative approach:

1. Sales differences.

2. Difficulty in collecting information on practical sales prices.

3. Difficulty in collecting information about the specific terms of the transaction.

4. Dependence on market activity.

5. Dependence on market stability.

6. Difficulty reconciling data on significantly different sales.

2. Cost approach

Cost approach - = this is a set of assessment methods based on determining the costs necessary to restore or replace the object of assessment, taking into account accumulated depreciation. Based on the assumption that the buyer will not pay for finished object more than for creating an object of similar utility.

When applying this approach, the costs of the investor, not the contractor, are taken into account.

This approach is based on the principle of substitution.

Information needed to apply the cost approach:

Level wages;

The amount of overhead;

equipment costs;

Profit rates of builders in a given region;

Market prices for building materials.

Stages of the cost approach:

Calculation of the cost of a land plot, taking into account the most efficient use (С з);

Calculation of costs for new construction of buildings being assessed (С ns);

Calculation of accumulated wear (I n):

Physical depreciation - depreciation associated with a decrease in the performance of an object as a result of natural physical aging and the influence of external adverse factors;

Functional wear and tear - wear due to non-compliance with modern requirements for such objects;

External wear - wear as a result of changes in external economic factors;

Calculation of the cost of improvements taking into account accumulated depreciation

Su \u003d C ns -C and

Determination of the final value of real estate

C zp \u003d C s + C y.

Advantages of the cost approach:

1. When evaluating new objects, the cost approach is the most reliable.

2. This approach is appropriate or the only possible one in the following cases:

Analysis of the best and most efficient land plot;

Feasibility study of new construction and improvements;

Evaluation of public-state and special facilities;

Valuation of objects in inactive markets;

Valuation for insurance and tax purposes.

Disadvantages of the cost approach:

1. Costs are not always equivalent to market value.

2. Attempts to achieve a more accurate assessment result are accompanied by a rapid increase in labor costs.

3. Inconsistency between the costs of acquiring the property under appraisal and the costs of new construction of exactly the same object, since accumulated depreciation is deducted from the cost of construction during the assessment process.

4. Problematic calculation of the cost of reproduction of old buildings.

5. Difficulty in determining the amount of accumulated wear and tear of old buildings and structures.

6. Separate assessment of the land plot from buildings.

7. Problematic evaluation of land plots in Russia.

3. Income approach

The income approach is based on the fact that the value of real estate in which capital is invested must correspond to the current assessment of the quality and quantity of income that this property is capable of bringing.

The income approach is a set of methods for assessing the value of real estate based on determining the current value of the expected income from it.

The main prerequisite for calculating the value of this approach is the lease of the property. Capitalization of income is carried out to convert future income from real estate into current value.

Capitalization of income is a process that determines the relationship between future income and the current value of an object.

Basic Formula income approach (IRV - formula):

property value appraisal

where V is the value of the property,

I - the expected income from the property being valued. Income usually refers to the net operating income that real estate is capable of bringing in for a period

R - the rate of return or profit - is the ratio or rate of capitalization.

Capitalization ratio - the rate of return, reflecting the relationship between income and the value of the object of assessment.

There are two types of capitalization:

Direct capitalization;

Capitalization of income at the rate of return on capital.

With direct capitalization, two quantities are considered: annual income and the capitalization rate.

The capitalization rate is the ratio of the market value of the property to the net income it brings.

Expected income is determined by analyzing income during the period of ownership of the property.

Discount rate - the rate of compound interest, which is applied when recalculating at a certain point in time the value of cash flows arising from the use of property.

Stages of income approach:

1. Calculation of the sum of all possible receipts from the object of assessment.

2. Calculation of the actual gross income.

3. Calculation of costs associated with the object of assessment:

Conditionally permanent;

Conditional variables (operational);

Reserves.

4. Determining the value of net operating income.

5. Convert expected returns to present value.