Property Valuation and Appraisal
Value concepts
Market value assumes a willing buyer and seller, neither under duress, both informed, with reasonable exposure time. Highest and best use is the legal, physically possible, financially feasible use that produces the most value. Core principles: substitution, contribution, conformity, progression and regression, anticipation, change, supply and demand, increasing and decreasing returns, and balance.
The three approaches
Sales comparison: adjust the comparables to the subject - if the comp is superior, subtract; if inferior, add. Cost approach: land value plus reproduction or replacement cost minus depreciation. Depreciation is physical deterioration, functional obsolescence, or external obsolescence; only external obsolescence can affect land. Income approach: value = net operating income ÷ cap rate; cap rate = NOI ÷ value; gross income multiplier = price ÷ gross rent.
Credentials and reports
Indiana requires a separate appraiser credential, distinct from a broker or salesperson license, and federally related transactions require a certified appraiser following USPAP. A comparative market analysis or broker price opinion is not an appraisal and must be labeled as an opinion of value.
Traps
Applying adjustments in the wrong direction. Depreciating the land. Using gross rent instead of NOI in a cap-rate problem. Assuming a higher cap rate means a higher value - they move in opposite directions. Confusing reproduction cost (an exact duplicate) with replacement cost (equal utility).
Rule of thumb
Cap rate up, value down. Know any two of NOI, cap rate, and value, and you can solve for the third.