is Real Estate Research, Anyway?
Market Feasibility and Appraisals
At Danter and Associates, we are a real estate research company specializing
in market feasibility research. One of the misconceptions that we battle most often
within the real estate industry is that a market feasibility study is the same thing as an
appraisal, or that an appraisal is really all you need to ensure that your project
achieves success. The following article addresses some details about the real estate
research we do, with emphasis on the difference between market feasibility study and
Q: What is Real Estate Research?
The broad answer is that real estate research is the process of
gathering and analyzing data on real estate values and market trends. Within this broad
category are several subcategories of research with different purposes and methodologies.
The two most prevalent types of real estate research are appraisals and market feasibility
studies. Other types of real estate research include rent and vacancy surveys, tenant or
homebuyer preference surveys, and studies of zoning laws and trends.
Danter and Associates emphasizes real estate research because we conduct several types of
studies, including area apartment rent and vacancy surveys, tracking of single-family and
condominium starts for certain areas, and surveys tracking tenant and shopper preferences.
However, these studies were developed to help us do our main line of business more
effectively: market feasibility studies.
Q: What is the Difference Between an Appraisal
and a Market
The difference can best be illustrated by the following
comparison. The major question answered by a market feasibility study is "If I build
it, will they come?"
The appraisal is designed to answer the question, "What will
it be worth?" The appraisal is an estimate of the value of a property as of a certain
date, while a market feasibility study measures expected market response. Because they
measure different aspects of the market, each type of study needs a different methodology.
Q: How Does an Appraisal Work?
First, an appraiser, in conjunction with the client, will
determine the purpose of the appraisal, which is expressed in a statement of purpose.
The purpose of most appraisals is to determine "market value" for the purpose
of buying, selling, improving, or financing a project. As defined by the American
Institute of Real Estate Appraisers in Appraisal Terminology and Handbook, market
value is "the price at which a willing seller would sell and a willing buyer would
buy, neither being under abnormal pressure."
Besides market value, an appraisal may also be undertaken to
identify insurable value, condemnation value, liquidation value, or assessed value.
An appraiser generally uses three approaches to help determine the appropriate value,
according to The Appraisal of Real Estate by the American Institute
of Real Estate Appraisers: the cost approach, the income approach, and the
market approach. Most appraisals will determine a value of a property using
all three approaches and then establish a final value by carefully
considering the purposes of the appraisal and the limitations inherent in
each of the approaches:
- The cost approach involves identifying the replacement cost of a project minus
- The income approach identifies the value which a property's net earning power will
- The market data approach is based on the sales of comparable properties. Each
transaction selected is studied for its sales/asking price, the conditions influencing the
sale, and the differences between the properties involved that would influence the value
of the property being appraised.
An appraiser goes through considerable training to make these
value judgments, and appraisers who are members of the American Institute of Real Estate
Appraisers (or other appraisal organizations) are held to a professional code of ethics
Appraisals are important in the development process because they set value within the
financing and acquisition process. No real estate transaction should take place without an
appraisal to set appropriate values.
Next: How a Market Feasibility Study Works