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VALUATION METHODS <br /> ! . SITE VALUE <br /> In valuing the subject site,. as though vacant as of the effective date of this report, the <br /> sales comparison approach is utilized. In this approach, recent sales and /or listings of <br /> similar sites are compared to the subject using the adjustment process (if appropriate) <br /> to indicate value. Where good market activity and data is available, this approach <br /> best reflects market behavior and provides a useful estimate of value for the subject <br /> land. <br /> r. <br /> F. COST APPROACH • <br /> The Cost Approach is based upon the principle that the value of property is significantly <br /> related to its physical characteristics and that no one would pay more than the cost to <br /> build a like facility in today's market on a comparable site. In this approach, the market <br /> value of the site is estimated and added to the depreciated value of the <br /> improvements. In addition, entrepreneurial profit is added. For proposed or newer <br /> - properties, this approach may have significant relevance. For older properties or those <br /> with substantial depreciation, this approach has limited application. However, the cost <br /> approach may prove useful as an indication of potential supply, as measured by the <br /> amount of profit evident. These . factors will be considered in addressing the emphasis <br /> placed on the Cost Approach. <br /> t <br /> INCOME APPROACH <br /> This .approach is predicated on the assumption that there is a definite relationship <br /> between the net income a property will earn and its value. Net income is the income <br /> generated before payment of any debt service. The process of converting it into value <br /> is called capitalization. Net income is divided by a capitalization rate. Factors such as <br /> risk, time, interest on the capital investment, upside potential and recapture of the <br /> depreciating asset are considered in the rate. Applying a capitalization rate based on <br /> indications from comparable sales reflects expectations of buyers and sellers in the <br /> market. <br /> Another capitalization concept employed with the Income Approach is the Discounted <br /> Cash Flow Analysis or yield capitalization. It is developed by projecting cash flows over <br /> a holding period assuming variations in income, expenses, lease terms, reversion rates <br /> and internal rates. The net present value of the cash flows is a method of measuring <br /> anticipated future benefits. . <br /> I SALES COMPARISON APPROACH <br /> This approach analyzes sales of comparable properties with regard to the nature and <br /> condition of each sale. Logical adjustments and /or comparisons are made for varying <br /> physical characteristics. For land value, a common denominator is a price per square <br /> foot or price per acre; for improved properties, it may be the price per square foot, <br /> price per unit, or a gross income multiplier. This approach develops a good indication of <br /> value when sales of similar properties have occurred. <br /> 1 <br /> i <br />