Assessment of real estate:

• ground areas;
• semi-construction/semi-building/under-construction;
• buildings and construction;
• apartments.

Real estate pricing strategy at the real estate market

There are three approaches used in the real estate pricing

1) expenditure,

2) comparative,

3) profit

1. Expenditure approach of pricing at the real estate market

Expenditure approach of pricing at the real estate market is realized in the following order:

а) price fixation for ground areas;

b) price fixation for reconstruction, exchange and other;

с) fixation of depreciation rate of buildings and construction objects.

d) Fixation of market value of real estate (accounting of financial means, designated for reconstruction-recovery works of ground areas, including depreciation of the object at the present moment.

It is necessary to reduce finances designated for reconstruction-recovery works, taking into account depreciation. It is necessary to clearly distinguish the term "depreciation" of buildings from the term " amortization" used in accounting.

This term means scheduled costs appropriated for obtainment of main assets according to the regulations set for depreciation.  

There are three types of amortization

a) Physical amortization of buildings which implies reduction of price of the object due to deterioration of original condition of the building elements.

b) Functional amortization which implies to the reduction of price of the object due to technical reasons, e.g. -  non-compliance of the construction with technical innovation standards, actual requirements of today’s reality, etc.

c) Economic amortization which implies to the reduction of price of the building due to change of its condition as a result of environmental conditions change.

Accrued amortization is the summary result of physical, functional and economic amortization of buildings and constructions.

 Accrued amortization should be divided into:

a) Recoverable, when costs appropriated for restoration of building condition are economically feasible.

b) Non-recoverable, when costs appropriated for restoration of building condition are not economically feasible.

 where:

• AGA - being an аmount of ground area
• OP - being an оbject price 
• RP - being a total amount of recovered object 
• AA - accrued amortization.

2. Profit approach of pricing at the real estate market

This approach implies to pricing at the real estate market based on profitability of the given object.

Within the profitability approach there have been used methods of cash flow value reduction, or transfer of profit to the capital.

Transfer of profit to the capital ratio is set based on: 

• Analytical method (cumulative construction),
• Market saturation (extraction),
• Mortgage investment (application of borrowed capital),
• Expert (method of poll among real estate market experts)

Analytical method (method of cumulative construction) is based on annual profit gained from real estate

where:

• I is net annual profit gained from deals
• R is capitalization rate

Capitalization rate is set through comparative method based on selected statistical data of similar objects at the real estate market.

For getting transfer of profit to the capital ratio, the relationship of the following factors are taken into consideration:  

a) factor of nonsusceptibility to risk, necessary for sale, including factors applied for investment purposes (inflation inclusive)

b) risk factors,

c) low realization factors,

d) investment management

Factor of increase / decrease of the forecast market price.  Discountability of cash flow implies the followng order of the assessment process:

a) Substantiation of forecast time;
b) Calculation of gross profit, factual gross profit and net functional profit within the forecast period of time (yearly, quarterly, monthly);

c) Calculation of discountability rate;

d) Calculation of the current value of the cash flow profitability which is the summary element of the net functional profit;

e) Forecast of reversion and its current value

where:

CCP -  calculation of current value,

C -t  is cash flow within the given period of time,

DR -t is discountability rate within the given period of time

Comparative approach of pricing at the real estate market

Comparative approach is used in case of existence of reliable market-related information (at least three units) regarding sales bargains of similar objects.

Price offers for the offered real estate at the free market can also be used.  

The best quality and effective use may serve for comparing necessary indicators /parameters/ of selection.

During assessment of real estate the comparative approach is used in the following order :

a) search of reliable information and analysis of the market situation of similar objects

b) setting of adequate unit of comparison

c) selection of elements necessary for comparison 

d) setting of elements necessary for comparison 

e) correlation of elements necessary for comparison  with other indicators / parameters / or a range of real estate prices.

The final decision on the result value gained in consequence of the sales comparison is made up based on analysis of checked prices for similar real estate objects.