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Valuation Methodology 28 <br />Valuation <br />Valuation Methodology <br />Appraisers usually consider three approaches to estimating the market value of real property. These <br />are the cost approach, sales comparison approach and the income capitalization approach. <br />The cost approach assumes that the informed purchaser would pay no more than the cost of <br />producing a substitute property with the same utility. This approach is particularly applicable when <br />the improvements being appraised are relatively new and represent the highest and best use of the <br />land or when the property has unique or specialized improvements for which there is little or no sales <br />data from comparable properties. <br />The sales comparison approach assumes that an informed purchaser would pay no more for a <br />property than the cost of acquiring another existing property with the same utility. This approach is <br />especially appropriate when an active market provides sufficient reliable data. The sales comparison <br />approach is less reliable in an inactive market or when estimating the value of properties for which no <br />directly comparable sales data is available. The sales comparison approach is often relied upon for <br />owner -user properties. <br />The income capitalization approach reflects the market's perception of a relationship between a <br />property's potential income and its market value. This approach converts the anticipated net income <br />from ownership of a property into a value indication through capitalization. The primary methods are <br />direct capitalization and discounted cash flow analysis, with one or both methods applied, as <br />appropriate. This approach is widely used in appraising income - producing properties. <br />Reconciliation of the various indications into a conclusion of value is based on an evaluation of the <br />quantity and quality of available data in each approach and the applicability of each approach to the <br />property type. <br />The methodology employed in this assignment is summarized as follows: <br />Approaches to Value <br />Approach ApplicabiIitytoSubject Use in Assignment <br />Cost Approach Appl i cable Uti I ized <br />Sales Comparison Approach Not Appl icabl e Not Utilized <br />Income Capitalization Approach Not Appl icabl e Not UtiIized <br />The Glenn Center <br />irr <br />Attachment number 1 <br />H -5 Page 361 <br />