Classification Of Property

Срс1.Classification of property. Methodological basis of evaluation:

“Types of property valuation. Approaches and methods of property valuation”

Principles of valuation:

The role of the principle of the best and most effective use in the evaluation of the object.

The principle of the best and most efficient use of the property is a synthesis of the principles of all three groups, which were discussed above. It allows the appraiser to identify the best and most profitable option from the possible uses of the property and use it for evaluation. This principle provides for the assessment of a plot of land, as if it were free (that is, when evaluating an object, it is primarily about the highest profitability of the land, then about the profitability of the entire property). This takes into account only those options for the use of real estate objects that:

  • Firstly, comply with legal norms;
  • Secondly, the implementation of which is possible physically;
  • Thirdly, feasible financially;
  • Fourth, provide the highest value of the property (economic efficiency).

A use case is selected in which the highest price can be paid for the object. If the site is free from buildings, then on the basis of the most effective option for using the land plot, the appraiser determines which object is to be built. If there is a building on the site, then the appraiser determines whether to increase the cost of the site by the value of the cost of the building or reduce by the amount of costs for the demolition of the building with the selected use of the land.

The principle of the best and most efficient use is a conceptual model for analyzing various factors affecting the value of a property. This model considers important factors of a physical, legal, social and economic nature that affect the value of a property, i.e. it is like a link between all evaluation principles. The best and most efficient use is defined as the most likely and cost-effective at the time of evaluation. This is the use of a plot of land and buildings located on it, which will provide the highest return today or in the near future. The analysis is divided into two parts: the optimal use of the vacant plot of land and the optimal use of the plot with buildings.

Analysis of the free area is made in order to determine the most cost-effective option for its use, not locking on the existing one. The evaluator should take into account the duration of the intended use, the response of the immediate environment, as well as the contribution of operational improvements, if any. The scope of the analysis should be limited to legal use cases, as well as physically acceptable possibilities. Are also important zone restrictions and limitations of the powers of the owner, which should be taken into account?

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Over time, the concept of optimal use may change due to the changes that have occurred. A motel building located on a busy highway may need to be redesigned if a new highway of national importance is laid away from it. Closed service stations can be used as catering facilities. Farm plots can be more effectively used as recreation areas or a private airport than a farm.

The main approaches and methods in assessing the market value of the property of the enterprise

Algorithm for the analysis of the best and most efficient use, the use of assessment methods, the harmonization of results, the preparation of an assessment report.

Providing the greatest efficiency (profitability) of this function. In this regard, it is advisable to keep in use the phrase “the best and most effective use” proposed by the Americans (hereinafter NNEI). However, instead of the phrase “the analysis of the best and most efficient use …” which appeared after the “literal” translation of the American “highest and best use analysis”, you should write “an analysis to select an option …” object of evaluation (analyzes a variety of options from which to choose the best).

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