Real estate appraisal is the science that seeks to determine the value of real estate in all its forms (land – housing – stores – factories – farms) to reach the appropriate value in most cases. Reaching the appropriate value of real estate depends on (science, art and experience). Science is to follow scientific methods which is (sale – comparison – income capitalization of commercial real estate – costs). The comparative sale method relies on statistics to deal with the modern real sales in the surrounding area of the target property or a similar area with the evaluation, provided that the comparative real estate is closer to the property subject of the evaluation in terms of quantitative and qualitative characteristics, then necessary adjustments and modifications are done according to scientific methods.
Income capitalization method is the basic method for commercial real estate and is based on the financial and accounting sciences and financial analysis of the real estate, where dependence is made to reach the value in light of reaching the expected net income from the property after confirming the data according to the market, and different methods are derived from that method, from which the direct capitalization method which is calculated as (net income / capitalization rate) and the method of deducting future cash flows at the appropriate discount rate while not ignoring the last value of the property. It is preferred to use Excel program in this method.
Finally, the cost method, which depends on three branches of science (cost accounting and engineering in addition to statistics to determine the value of the land or the residual value method that depends on income capitalization and accounting). The value of the construction of the property is calculated at the time of the appraisal according to the situation on which it is based (the value of reproduction of reality) after deduction of different depreciations, if any, including (depreciation that can be repaired and restored – external depreciation as a result of external factors – functional depreciation) and then adding the value of the land to the property. In Comparative sale method, the aforementioned scientific methods are used. The appraisal expert must be familiar with a mixture of important related sciences such as the principles of statistics and micro and macroeconomics, to learn about the theory of value and the ability to analyze both supply and demand, financial sciences, engineering, and market study. As for art, it depends on how to determine the appropriate method and rely on any value that was deduced from science or weighting the results of reconciliation ratios between the methods used. While experience should be used to judge the different results.