This article was written by Leanne Goff, a current REALTOR® University Masters of Real Estate student, and is Part 4 of a 12 Part Series.
Understanding how to value property is a skill that all real estate professionals must master. This is something we’ve all strived to perfect and the class, Real Estate Valuation, helps REALTORS® master. We discussed the physical characteristics, marketability, and valuation methods that appraisers consider when assessing physical property. Applying this knowledge to current events in my geographic area was one of the goals that Professor Sam Martin wanted the students to learn from.
The coursework revolved around how to value different entities in real estate. These included land, commercial buildings, residential homes and even amenities to the land including water or mineral rights. This review was not to create experts in the subject of minerals but rather to discuss the ways that an appraiser has to evaluate all layers involved in the valuation of property. Researching the ownership of these distinct property types was the focus. This offered a clear understanding of the elements that influence value.
Beyond the elements of ownership in a property, the marketability based on location and amenities was also included. Marketability is the process in which an appraiser investigates how a specific property will be absorbed into the marketplace. This focuses on the demand for the property’s location and availability of services. For example, the way a farm or ranch is valued will have different influences than a commercial building in a metropolitan area. The elements of zoning, or the potential transformation of zoning, the availability of transportation and also utilities were discussed in how they influence value. More examples that influence the value of a parcel include easements, covenants or restrictions which may be exposed through the research process.
Once the elements of a property are determined, the appraiser must consider the proper valuation approach. The two styles evaluated included the cost and income approach. The cost approach summarizes the market price using equivalent sales from similar surrounding properties. This is what residential REALTORS® most often use when presenting value to clients. The income approach is slightly different in that it values the property based on the income it produces. This method is best applied towards income property, both residential and commercial.
Once all of the elements that could influence value, both physical and also marketability of the property, the class dove into case studies. It was the student’s responsibility to take an example and determine if the use was physically possible, legally permitted, as well as economically feasible and the maximally productive use of the land. To bring this home for myself, I would try to apply the examples to property around my geographic location. This would allow me to research the elements influencing properties around Colorado, where things like water and mineral rights are of great importance.
Having the opportunity to apply my coursework to my actual work environment was one of the many unexpected benefits of my work at REALTOR® University. Getting to know Professor Sam Martin was also one of the joys of the class. His upbeat and positive attitude leads students through this highly technical material with such charisma that it shone through the internet portal where we learn. This foundational class helped me reflect on the skills that I had been developing through my years of being a REALTOR® as well as help grow my ability to service a wider client base.
Leanne Goff is a managing broker with TrailRidge Realty, an independent real estate agency in Boulder, Colo. She has been licensed since 2008, and is active with the Boulder Area REALTOR® Association. Her work with BARA’s YPN led to achieving NAR’s Small Network of the Year Award in 2014. Connect with Leanne on Twitter: @leannegoff, or on LinkedIn.