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Property prices are one of the things you need to look into as a renter and buyer. But how do valuations work? Find out now at Century 21. The way that property valuations work and how it’s computed are the following:

The three most common ways of valuing property are as follows:

Cost Approach

Market Approach

Capitalization Approach

Each of these approaches is detailed below:

The Cost Approach

This is the most common way of valuing property. In this approach, the cost of the property is used as a starting point. The value of the property is then determined by comparing the property to other similar properties that have already been sold.

The value of the property is then multiplied by a factor to determine the final value of the property. The factor is known as the discount rate.

The discount rate is the interest rate at which the property would have to be sold to cover the costs of buying and selling the property. This rate is used to calculate the value of the property.

This is how a cost approach works:

1. Cost of the property is determined.

2. Value of the property is calculated.

3. Discount rate is calculated.

4. Value of the property is multiplied by the discount rate to determine the final value of the property.

The market approach

The market approach is also the most common way of valuing property.

The Cost Approach

The cost approach is used to calculate the fair market value of the property. It is also known as the market approach. The cost approach is the most popular approach used to value property and the least subjective.

It is a systematic approach which involves calculating the cost of the property, its location, its physical condition, and its size.

The Market Approach

The market approach is also known as the sales approach. It is also the most popular approach used to value property. It is used to value property that is not for sale.

The market approach is the most subjective approach. It involves analyzing sales of similar properties in the same market.

Valuation Techniques

Valuation techniques are the other two methods of calculating property values. They are the Income Approach and the Market Approach.

The Income Approach

The income approach is used to calculate the fair market value of the property. It is also known as the asset approach.

The income approach is a method that is used to calculate the net income of the property. It is a capitalization method which involves capitalizing the net income of the property.

The Market Approach

The market approach is used to calculate the fair market value of the property.