Key Takeaways
- Match valuation rigor to decision stakes: desktop for screening, formal appraisal for closing.
- The cost approach uses: Land Value + Replacement Cost − Depreciation (physical + functional + external).
- Cap rate sensitivity analysis reveals how small rate changes cause large value swings.
- Distressed property MAO = ARV − Repairs − Holding Costs − Required Profit.
This recap consolidates the applied valuation techniques from Track 2. Review the practical workflows, cost approach mechanics, spreadsheet modeling, and distressed property analysis before advancing to pitfalls and controls in Track 3.
Track 2 Summary
In this track, we moved from theory to practice. We established the daily valuation workflow—from screening with quick metrics to formal appraisal-level analysis. We examined the cost approach in detail including three types of depreciation (physical, functional, external) and when the cost approach dominates. We built spreadsheet models for income analysis, comp adjustment grids, and sensitivity analysis. We applied all three approaches to a distressed property case study and reconciled divergent results. The key skill developed is the ability to value any residential property type using a systematic, repeatable process.
Common Adjustment Categories
Adjustments are applied in a specific sequence per USPAP guidelines: (1) Property rights conveyed—fee simple vs. leased fee vs. leasehold. (2) Financing terms—seller financing, below-market rates. (3) Conditions of sale—motivation, related parties. (4) Market conditions (time)—appreciation or depreciation since sale date. (5) Location—neighborhood, proximity to amenities. (6) Physical characteristics—size, condition, age, features, quality. Net adjustments should generally not exceed 15% and gross adjustments should not exceed 25% of any individual comp's sale price for the comp to be considered reliable.
Key Takeaways
- ✓Match valuation rigor to decision stakes: desktop for screening, formal appraisal for closing.
- ✓The cost approach uses: Land Value + Replacement Cost − Depreciation (physical + functional + external).
- ✓Cap rate sensitivity analysis reveals how small rate changes cause large value swings.
- ✓Distressed property MAO = ARV − Repairs − Holding Costs − Required Profit.
Sources
- Appraisal Institute — Valuation Standards(2025-03-15)
- CoreLogic — Property and Market Data(2025-03-15)
Common Mistakes to Avoid
Treating the Applied Valuation topics as purely theoretical without applying them to actual markets.
Consequence: Knowledge without application does not improve investment outcomes.
Correction: Practice applying these frameworks to real properties and markets before making investment decisions.
Moving to advanced topics before mastering the foundational concepts covered in this track.
Consequence: Advanced analysis builds on fundamentals; gaps in foundation produce unreliable advanced results.
Correction: Ensure comfort with all core concepts before progressing to applied or advanced tracks.
Test Your Knowledge
1.A warehouse has a replacement cost of $2,000,000, land value of $300,000, and 40% accumulated depreciation. What is the indicated value by the cost approach?
2.Net adjustments to a comparable sale should generally not exceed what percentage of the comp's sale price?
3.A property with $75,000 NOI is valued at $1,071,429. What cap rate was used?