RE-160 Chapter Notes - Chapter 1: Obsolescence, Income Approach

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Property appraisal is intended to ensure that the market value of the property used as security is sufficiently high to pay the loan balance in the event of default. In other words the property"s market value is important to both the lender the borrower since the property will either be the full or partial security for the loan granted. The borrower will not want to pay more than the market value while the lender will not want to loan more than a given proportion of the market value. Property appraisal reports form part of the documentation required by lenders and are fundamental basis of the investment decision. Appraisal is an estimate of value which involves the use of a systematic approach which includes: Approaches to valuation: market approach / comparative sales method, cost approach / cost reinstatement method, income capitalization approach.

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