In the process of market valuation, income approach is not commonly reported by appraisers because of the complexity of developing a opinion of value on a property. Right now, the ones that are ideal for making income are residential apartment complexes, residential condominiums, hotels, commercial buildings, subdivided warehouses and many more.
This process can only be pulled off by a seasoned veteran appraiser who has extensive experience on appraisal of such properties. In the previous articles, I have previously written about "Understanding Real Estate Market Valuation Reports (Real Estate Appraisal): Basics of the Narrative Report" which is related in this article on discussing about the other two approaches from Sales Comparison or Market Data Approach and Cost Approach in determining the construction cost of current price of the property minus the depreciation caused by physical deterioration.
Determining the Net Operating Income
Recently, a client requested our appraisal service in determining the true value
of the property because many of the unit owners are selling off their
properties and are pricing it way below their market value compared to
the one's sold by the developers at below market prices (possibly 2010
prices). It is experiencing tremendous supply of condominium properties
at -15% in prices which is a bargain for those who have excess funds to invest in real estate.
As appraisers, we collect the data from the client, the data needed for this process are in order to get the net operating income. To give one an example, we use a residential condominium unit for rent in Quezon City which the client wishes to sell off this 2021 because of current real estate condition located below:
Monthly Income
- Rent on the property per square meters
- Other Sources of Income From Property (ex. parking space lease)
- Vacancy Rate in percent (%) - Current Vacancy Rate for Residential Condo at 16.9 % (as of 1st Quarter 2021) **
** Note: Vacancy Rates are variable and can change anytime. The figure given above is based from Colliers International.
Expenses
- Real Property Taxes (spread annually into 12 months)
- Homeowners Association Fees
- Management Fees
- Other applicable expenses (Insurance - Fire, Disaster, Flood etc)
These are usually computed as monthly income deducted by the expenses just to determine the net operating income (NOI) of the property.
Reconciliation of Value
C. F. Baluyut Realty offers different services from general real estate brokerage, home loan assistance, real estate appraisal of different properties and have assisted satisfied clients over the past decade.
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