The appraisals for Institutional properties usually have a small pool of users. Properties are represented by schools, churches, municipal facilities, public parklands and improvements, where the use for the appraisal is often for society at large, rather than for the individual. The value of institutional properties can be examined for value and use purposes, to a specific use or user when intended to continue as such, or for value and exchange purposes to a typical use or user when seeking alternative use of the real estate.
There are three common methods used:
Direct Comparison Method – a look at similar properties listed and/or sold, where the value can be converted into unit price equivalent, taking into account any differences that may affect the value. The appraiser will describe and classify the property and select appropriate properties for comparison reading value.
Income Approach – a look at the future income potential of a property with different applications available:
- Gross Income Multiplier- A rough measure of the value of an investment property, obtained by dividing the property’s sale price by its effective gross income.
- Overall Capitalization – The ratio between the net operating income produced by an asset and its expected rate of return.
- Discounted Cash Flow – A long term study of future rents over the going-in economic horizon of a property and its residual land value, using inflators and risk rate applications.
Cost Approach – A look at replacement cost taking into account any depreciation and/or obsolescence. The appraiser would estimate the cost of land, estimate the replacement cost of improvements and take into account any depreciation. When property is highly unique and no data can be uncovered, greater reliance can be sometimes placed upon the findings of this methodology.