Property Valuation and Market Analysis
Value and approaches
Market value assumes an arm's-length sale, informed buyers and sellers, no undue pressure, and reasonable exposure. A CMA is a brokerage opinion of price, not an appraisal; licensees must not call it an appraisal or guarantee value. The sales comparison approach adjusts comparable sales toward the subject. The cost approach estimates replacement/reproduction cost minus depreciation plus land value; it is useful for special-purpose or new construction. The income approach capitalizes net operating income (value = NOI ÷ cap rate) or uses gross rent multipliers. Reconciliation weighs the most reliable approach.
Adjustments and market forces
If the comparable is superior, subtract; if inferior, add. Adjust the comp, not the subject. Depreciation may be physical, functional, or external/economic. Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive. Principles include substitution, contribution, conformity, progression/regression, anticipation, and supply/demand. Traps include using a CMA as an appraisal, adjusting the subject, double-counting depreciation, and ignoring concessions or market conditions.
Worked rule
Comp sold for $300,000 with a garage the subject lacks; garage value is $10,000. The comp is superior, so subtract $10,000: adjusted value $290,000. If the comp lacks a feature the subject has, add its value. Rule of thumb: “Comp superior? Subtract. Comp inferior? Add.”