Real Estate Term of the Day: Evaluation
EVALUATION – a study of potential property uses other than to determine its present value (Barron’s Dictionary of Real Estate Terms)
Evaluations can include studies related to several different aspects of the property such as:
- Market & Marketability – the speed or ease with which a property can be sold at or near its market value; its expected market appeal*
- Feasibility – a determination of the likelihood that a proposed development will fulfill the objectives of a particular investor*
- estimate the demand for housing units in the area
- estimate the ABSORPTION RATE for the project
- discuss legal and other considerations
- forecast cash flows
- approximate investment returns likely to be produced
- Highest & Best Use – the legally, financially, and physically possible use that, at the time of APPRAISAL, is most likely to produce the greatest net return to the land and/or buildings over a given period*
- Land Use – the determination that the property can be use as desired. This may require speaking with local city, county or state officials to determine if the land is zoned properly and to determine if there are zoning requirements that must be met
- Supply & Demand – a fundamental economic concept, which holds that the price is set at an amount where the quality supplied and quantity demanded clear the market. From that intersection, higher prices will increase supply, reduce demand, or both. Lower quantities demanded will reduce the prices*
*source: Barron’s Dictionary of Real Estate Terms
