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100 Acres,Penrose,CO <br /> VALUATION SECTION <br /> METHODOLOGY <br /> The appraisal process is a methodology utilized by an appraiser that provides a logical sequence of <br /> analysis. The appraiser must define the problem,plan the appraisal,gather the data, analyze the data, <br /> and apply the data to three acceptable approaches to value estimation. The three approaches are the <br /> Cost Approach, Direct Sales Comparison Analysis, and the Income Approach. All three of the <br /> approaches will be briefly discussed as follows. <br /> The Cost Approach is a method utilized by the appraiser in estimating the value of the subject property. <br /> Underlying this concept is the Principle of Substitution which states that the informed, rational <br /> purchaser will pay no more for a property than the cost of him producing a substitute property with the <br /> same utility as the subject property. Several steps are necessary to arrive at a value indicated by the <br /> Cost Approach. First,the appraiser must estimate the site value as if vacant and available to be put to <br /> its Highest and Best Use. This is generally done by the Direct Sales Comparison Analysis as used in the <br /> site description and valuation section of this appraisal. Secondly,the reproduction cost new of the <br /> improvements is estimated, using current cost figures from Marshall-Swift, a nationwide appraisal <br /> information service. Thirdly, accrued depreciation from all sources, if applicable, is deducted from the <br /> reproduction cost new of the improvements. This figure represents the depreciated value of the <br /> improvements to the total value of the property.Next,the estimated depreciated value of all site <br /> improvements is added to arrive at the total depreciated value of the improvements. Finally,the <br /> estimated depreciated value of all improvements is added to the estimated site value and then rounded <br /> to an appropriate level to arrive at the value indicated by the Cost Approach. <br /> The Direct Sales Comparison Analysis is utilized by the appraiser in estimating the Market Value, <br /> which is the most commonly to be judged, especially in residential appraising. It is of vital importance <br /> that the components of Market Value be known to the appraiser when extracting competitive properties <br /> from the local market. By utilizing this approach to value estimation,the appraiser attempts to estimate <br /> what the subject property is most likely to sell for under specified market conditions by researching the <br /> local market.An appraiser, while searching for comparable properties, attempts to find competitive <br /> properties that have recently sold in that area, are located in similar neighborhoods,with similarities in <br /> size, age, design, condition, and other salient characteristics influencing the sale. After all important <br /> data concerning each comparable sale is collected and verified,the comparable properties are adjusted <br /> for differences to the subject property to indicate a value range attributable to the subject property. The <br /> adjusted sales price of each comparable sale is an indication of what the comparables would have sold <br /> for if they had possessed the basic physical and economic characteristics of the subject property. The <br /> value range of the comparable properties is then reconciled and rounded to the final estimate of value <br /> indicated by the Direct Sales Comparison Analysis to value. <br /> Important to the Direct Sales Comparison Analysis is the Principle of Substitution which states that the <br /> informed purchaser will pay no more for a property than the cost to him of acquiring a satisfactory <br /> substitute property with similar characteristics to the subject property. Recall that the definition of <br /> Market Value takes into consideration that the buyer is typically an informed purchaser who acts <br /> rationally and prudently on the basis of his information. <br /> The Income Approach is an additional method utilized by the appraiser in estimating the value of a <br /> commercial property. This approach states that an informed purchaser would pay no more for a <br /> property than the cost of obtaining a return(in income or amenities)of the same amount and <br /> embodying the same amount of risk involved in the subject property. Furthermore,the Income <br /> Approach has as its premise the translation of monthly rental value into an estimate of capitalized <br /> income by the use of amenity returns in future years. The Income Approach, as used for investment <br /> properties, has as its premise the estimation of the amount of net income,which when capitalized in a <br /> 14 <br /> ©2012 Grantham Appraisal Service <br /> All Rights Reserved <br />