With more than two decades of experience, East Hanover, New Jersey resident Konstantin (Stan) Belenky has been actively involved in the NJ real estate market since 1997. Experienced in appraising various types of properties, he is the chief appraiser of Pyramid Consulting Group, LLC where he supervises a team of appraisers working on different projects. Konstantin “Stan” Belenky utilizes various types of property appraisal methods to effectively perform his duties. How is real estate being appraised?
There are three (3) approaches to the problem of finding market value. All data utilized in these approaches must come from the marketplace. The approaches are commonly referred to as the Cost, Income, and Sales Comparison.
The Cost Approach is utilized by estimating, utilizing market costs, the replacement cost of a building and other improvements, deducting depreciation, which is a loss in value from all causes, and adding this depreciated value to the value of the land upon which the improvements are constructed. Depreciation may come from actual physical deterioration, loss in value due to functional inutility, or through a loss in value resulting from economic reasons such as factors in the market place which would cause the property to rent for an amount not adequate to justify the investment in the improvements.
The Income Approach to value is utilized by estimating potential gross income, deducting an amount for vacancies and other rent loss, and deducting all expenses in order to apply an appropriate capitalization rate to the resulting net income in order to find the market value. All income estimates, expense items, and capitalization rates must be obtained from the market.
The Sales Comparison is sometimes referred to as the Direct Comparison Approach to value. Sales of similar properties are compared to the property under appraisal in order to arrive at an estimate of value. Units of comparison in appraising income-producing property include location, age, time of sale, and other characteristics of the property that may influence value. Adjustments made in making this comparison must have a basis in market experience.
In essence, all approaches to value (particularly when the purpose of the appraisal is to establish market value) are market data approaches since the data inputs are presumably market derived.
