Understanding Property Cost Evaluation

Thursday, July 26, 2018

There’s really nothing mysterious about the term “property cost evaluation”.  It refers to the assessment of residential and commercial properties.

Residential property cost evaluations cost less than a full appraisal. Commercial property cost evaluations can be ideal, if a loan amount if $250,000 or less, or for collateral purposes a business loan is $1 million or less

The four concepts on which the basics of evaluation are based include:

  • Scarcity
  • Demand
  • Utility
  • Transferability

When appraising, the value of the property is the main consideration. Both current worth and potential future income of the property are considered.

There are three different methods by which commercial properties can be evaluated:

  • Replacement cost method
  • Sales comparison method
  • Income capitalization method

Replacement Cost Method: This method determines the reconstruction costs of the property. Material costs, depreciation, and the cost of labor are considerations.

Sales Comparison Method: This is a ‘market approach’ and is described as an evaluation technique which looks at the recent sales price of commercial properties that are like properties being appraised.

Income Capitalization Method: Using an estimation process, this method determines the value of a commercial property by studying the property’s future net income. This is the most widely used for investment purposes.

Property Cost Evaluation Benefits

  • Compliant with the standards and regulations in all states
  • Agents know how to perform commercial evaluations.
  • Evaluations are thoroughly reviewed and checked by a CQAA (Commercial Quality Assurance Analyst) to ensure compliancy with agent’s appraisal.

Contact your independent insurance agent in the Midland/Odessa area to get any of your questions answered about property cost evaluation, whether residential or commercial. Get the expert help you need to make informed decisions about your property.

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