FINANCIAL ANALYSIS

FINANCIAL ANALYSIS

Answer 1

Land is more valuable for the people, and it provides utility. For example, there is a large land the Northern Canada but there is no any economic value because there is no economic use. There are various methods that are applicable for determining the value of the land. But the simplest method of determining the value of land through comparing the land (i.e. sold) to the other plots which is similar in the infrastructure (Askham, 2003). The plot should be assumed to sell approximately to the same price that is sold previously. For example, if someone is selling the underdeveloped property and intending to determine the value so it can be evaluated on the basis of various sales of properties (i.e. similar) and ultimately it may provides the accurate value of the land. However, it could be difficult to estimate or justify the real value of the property that is a having a unique view or isolated and there is supposed to be no sales of similar properties to compare (Adair, 1996). Land valuation, real estate appraisal or property valuation that is considered as a process of valuation of real property. The “value” is commonly referred to the market value of the property. As compared to the corporate stocks, appraisals are required because of the transactions of real estate do not occur on the frequently basis. In addition, the important factor in the evaluation is the location of the property. As a result, each property is differed on the basis of the property location.

Residual Method of Appraisal

For developing the land and projects, the residual method of appraisal is used. This method is used to identify the value of the gross value of the project in which the development cost is deducted such as building and infrastructure costs, profit of developers, professional fees and interest factor to obtain the final gross value. The present residual value refers to the discounted value for the period of the development (French 1996, pp.48-49). The method that is used for determining the value of the land by the real estate developers is known as the “residual method of appraisal” or “development method of appraisal (French 1996, pp.48-49). This residual method of appraisal also identifies the uses of land that is incorporated and analyzes the market demands and the relevant risk which influences the decision making of the development. There are the following traditional methods of the valuation that can be compared with the residual method of evaluation(French 1996, pp.48-49):

Valuation Method of Comparison

For determining the market value of properties, the comparison method is widely accepted and most commonly used. In this method, the value of the property is compared with the similar property in the locality. On the other hand, the residual method of appraisal is used to assess that either a property is viable financially or not. If a property has the value of development or latent value, it means the forecasted future value will be exceeded after ...