A Review of Property Valuation Methods


The following article will provide an overview of property valuation in Dubai and its advantages and disadvantages. Real estate is a complex industry with numerous methods and systems in use. There are traditional and advanced methods. Listed below are some of the more popular methods. While the traditional method includes cost, income, and contractor’s methods, the more sophisticated and innovative methods also exist. These include the hedonic pricing method, fuzzy logic, ARIMA models, and spatial analysis.

Cost approach:

The cost approach uses market information, such as sales data. This method is often used in revaluations. However, it is less effective in densely developed urban areas, as buildings of all sizes are located close together on similar parcels of land. For these reasons, building from scratch can be the best choice if the price is right, but this method cannot account for the additional development costs. It also isn’t very practical when determining the value of a single-family home.

Investment method:

The investment method uses data from past sales and lettings to establish the value of a real estate property. While it doesn’t consider future cash flow potential, it does consider the potential of a property to generate a return on investment. A good example is an apartment building where the owner is willing to sell the property for a price far below its market value. This method is especially useful for selling properties in distress, where the seller faces financial trouble and must sell the property to get out of the situation.

Comparison method:

Among the most common methods, the comparison method is the most accurate. For example, the cost approach is most accurate when the comparable properties have stable market values. However, if comparable factors are not available, the value method can be inaccurate. Likewise, the cost approach is not accurate for vacant properties with little NOI. Therefore, a specialized report using price per square foot or the discounted cash flow approach is used in these cases.

In addition to the cost approach, the other two approaches are more accurate and representative. The cost approach involves making separate estimates of a property’s land and building and depreciation, then adding them together to arrive at a value for the whole improved property.