Third-party reports can make or break your real estate purchase or sale.  The most typical third-party reports are appraisal reports, title commitments/policies, and surveys. This is Part II of this series.

The comparable sales approach, to value, along with the income approach to value, is one of the commonly used valuation methods.  This involves the appraiser making a survey of what he believes to be “comparable” sales to the sale of the subject property in comparable neighborhoods.  If property A, property B, and property C – all in the same or similar neighborhoods sell on average for $195 per square foot then the subject property should be worth a similar amount per square foot.  The validity of this approach to value is highly dependent on the skill of the appraiser doing the appraisal.  A skilled appraiser can get an appropriate conclusion, but a not-so-skilled appraiser may not.  The reproduction cost approach to value is not used as often but still has a place in getting the most complete value conclusion.  This approach simply attempts to figure out what it would cost in today’s dollars to replace the subject property land and building.  Most appraisers use the “Marshall & Swift” tables to obtain the cost per s.f. of various types of construction and after doing a series of computations can estimate what the current replacement cost of the property would be.  While this approach is useful to give perspective on a property other factors such as depreciation make this a somewhat subjective way to value a property and most lenders and investors do not put as much reliance on this method as they do for the other two value approaches.

Please see Part One of this series.

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