Cost Method
The depreciated cost method (or adjusted cost price) consists of establishing the replacement value of a building followed by applying various depreciations (physical, functional, economical) in order to infer a value
The steps are as follows:
- Market value of the land
- Contributory value of improvements (landscaping)
- Depreciated cost of the building (replacement cost minus depreciations: physical, functional, economical)
- Contributory value of dependencies (i.e.: garage, pool, spa, attached carport)
The market value can be obtained through adding up these elements.”
Comparison Method
The comparison method is used to compare the immovable subject to sold buildings sharing similar characteristics. Since all buildings are unique, we adjust comparable sales using the characteristics of the subject in order to compare buildings on the same basis. As an example, please refer to the following non-exhaustive list of features that are normally subject to adjustment:
- Time
- The size of the land
- The living space
- The year of construction
- The apparent age
- The dependencies (pool, garage)
- The presence or absence of a basement
- The size of the basement
- Additional elements: central vacuum cleaner, alarm system, irrigation system, wall-mounted heat pump, quartz or granite countertops, etc.
Following the adjustment of these various elements of the building, we are able to present the client with the market value of the property based on the comparison method.
Income Method
The income method consists of establishing the market value of a property based on investors’ behaviour regarding the income generated by the property. We analyze the said behaviour using transactions involving similar buildings. Here are the steps to this method:
- Valuation of the potential effective gross income based on the data provided and / or our market rental analysis
- Valuation of vacancy rate and bad debts based on current market trends;
- The effective gross income is obtained by subtracting the vacancy from the potential gross income;
- Standardization of operating expenses (taxes, insurance, wages, maintenance, management, etc.);
- The net income is obtained by subtracting the expenditures from the effective gross income;
- You can obtain the market value by applying the market discount rate to the net income;
- It is possible to use the mortgage / down payment technique for which the result is calculated using the following parameters: the financing percentage, the down payment percentage, the interest rate, the term of the loan, the amortization of the loan and the dividend rate on the down payment.
- It is also possible to use the market discount rate based on our analysis of comparable real estate transactions.