Chapter 1
Brokerage Operations and Management
Course: Alaska Real Estate Exam Prep
Subject: National Real Estate Broker Exams Prep
Chapter: Valuation Appraisal And Market Analysis
Principles of Real Estate Valuation
Real estate valuation is the process of estimating the economic value of real property. Value is not created by the physical structure alone. Value results from the relationship between property characteristics, market demand, legal rights, location, utility, scarcity, transferability, financing conditions, and buyer expectations. In brokerage, valuation affects listing strategy, buyer counseling, investment analysis, financing, appraisal review, negotiation, taxation, insurance, and settlement.
A broker must distinguish price, cost, and value.
- Price is the amount actually paid for a property in a transaction.
- Cost is the amount required to create, construct, or acquire an improvement or property component.
- Value is the estimated worth of the property in the marketplace under specific conditions. These three terms are related, but they are not identical.