Valuation & Appraisal — Cheatsheet

Three Approaches to Value — Summary

Reconciliation: Appraiser weights all three approaches; most weight goes to the approach with the best available data for the property type. Never a simple average.

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Sales Comparison — The CBS Adjustment Rule

CBS = Comparable Better, Subtract

Example: Comp sold for $1,200,000. Comp has a pool; subject does not. Pool worth $30,000. Comp is better → subtract → adjusted comp = $1,170,000.

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Income Approach Formulas

Net Operating Income (NOI)

`` Gross Potential Income (GPI) − Vacancy & Collection Loss − Operating Expenses (taxes, insurance, maintenance, management — NOT debt service) = Net Operating Income (NOI) `

Direct Capitalization

` Value = NOI ÷ Cap Rate Cap Rate = NOI ÷ Value NOI = Value × Cap Rate `

Gross Rent Multiplier (GRM)

` GRM = Sale Price ÷ Monthly Gross Rent (derived from comparable sales) Value = Monthly Gross Rent × GRM (applied to subject property) `

GRM uses gross rent before expenses — quick estimate, less precise than full cap rate analysis.

CA example: Oakland apartment, NOI = $120,000, market cap rate = 4.5% → Value = $120,000 ÷ 0.045 = $2,666,667

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Market Value vs. Other Value Concepts

Prop 13 formula: Assessed Value ≈ Purchase Price × (1.02)^years since purchase

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Principles of Value — Quick Reference

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Depreciation Types — Full Reference Table

Key rule: Economic/external obsolescence is always incurable — the owner cannot control or fix external causes.

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Straight-Line Depreciation Formula

` Annual Depreciation Rate = 1 ÷ Economic Life Annual Depreciation $ = Replacement Cost New × Annual Rate Accrued Depreciation = Annual $ × Effective Age Depreciated Value = Replacement Cost New − Accrued Depreciation Total Property Value = Land Value + Depreciated Value of Improvements ``

Use effective age (condition-based), not chronological age. A well-maintained 30-year-old building may have an effective age of 15 → less depreciation → higher value.

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CMA vs. Appraisal vs. AVM

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CMA Comparable Selection Criteria

Good comps for a California residential CMA should be:

• Same neighborhood (within 0.25–0.5 miles in urban CA markets)

• Similar square footage (within ~10–15%)

• Same property type (SFR to SFR; condo to condo)

• Sold within last 6 months (prefer 3 months in active CA markets)

• Similar bedroom/bathroom count, age, and condition

Data hierarchy in a CMA:

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CA Market Cap Rate Reference

Lower cap rates = higher demand and lower perceived risk (typical in CA coastal cities):