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Article: Real property valuation in a changing economic and market cycle. (includes appendix)
- Article from:
- Appraisal Journal
- Article date:
- January 1, 1996
- Author:
CopyrightCOPYRIGHT 1996 The Appraisal Institute. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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A typical market value appraisal of an income-producing property defines a set of current market conditions and economic trends that are projected to remain relatively stable into the future. These projections often differ little from current operating statements with the exception of annual adjustments in income and expenses for inflation. As a result, many appraisals overstate or understate value because they fail to consider the impacts of economic and market cycle variables.
For example, at or near the peak of a real estate cycle when market demand exceeds supply, the capitalization of the income stream and the constant trend-driven net operating income (NOI) ...