THE THREE (3) PRINCIPALS VALUATION METHODS
This approach is one that provides an indication of value by comparing the subject assets with identical or similar assets for which price information is available with the necessary adjustments made for differences in location, locality, size, age, physical state.
The Investment Method/Income Stream Approach
This method is ideal in the valuation of commercial properties or properties which generate an income stream. This approach is based on the principle that annual values and capital values are related to each other and that, given the income a property generates or its annual value, the capital value can be found.
The Depreciation Replacement Cost Method (also referred to as the Cost Approach Method)
This approach is based on the method of substitution and is used to value specialized properties which seldom change hands because there is no active market for asset being valued and for which there are few or no evidence of recent sale transactions due to the specialized nature of properties/assets.
The basic approach is:
Determination of the current gross replacement or (reproduction) cost of asset less allowances for physical deterioration, functional and economic obsolescence plus an estimate of the market value for the existing use of land (where applicable).
The Profit Approach
This approach is based on the assumption that some properties values are based on the profits derived from their use. Residual Method also referred to as the “Hypothetical Development Method” This is used for properties which have re-development potential and is used or needed for properties which have an element of latent value which can be realized by the money invested in property.