Valuations
Valuation is a process by which analysts determine the present or expected worth of a stock, company, or asset. The purpose of valuation is to appraise a security and compare the calculated value to the current market price in order to find attractive investment candidates. While the current market price is said to reflect all variables (including irrational behavior), valuation models will only factor in a few variables—this is why there are so many different methods of valuation.
Real Estate Valuation
Estimating the value of real estate is necessary for a variety of endeavors,
including financing, sales listing, investment analysis, property insurance,
and taxation. But for most people, determining the asking or purchase
price of a piece of real property is the most useful application of real estate
valuation.
KEY TAKEAWAYS
- Valuing real estate is difficult since each property has unique features
such as location, lot size, floor plan, and amenities. - General real estate market concepts like supply and demand in a
given region will certainly play into a particular property's over-all
value. - Individual properties, however, must be subject to appraisal, using
one of several methods, to ascertain a fair value.
Basic Valuation Concepts
Technically speaking, a property's value is defined as the present worth of
future benefits arising from the ownership of the property. Unlike
many consumer goods that are quickly used, the benefits of real property
are generally realized over a long period of time. Therefore, an estimate of
a property's value must take into consideration economic and social trends,
as well as governmental controls or regulations and environmental
conditions that may influence the four elements of value:
- Demand: the desire or need for ownership supported by the financial
means to satisfy the desire. - Utility: the ability to satisfy future owners desires and needs
- Scarcity: the finite supply of competing properties
- Transferability: the ease with which ownership rights are transferred