A Case Study On Improving Cost Approaches In Real Estate Appraisal

This dissertation studies one of the most common ways of asset evaluation in Chinese real estate industry: cost method. Nowadays, three major approaches: markets comparison method,costs method and profits method, are generally adopt in assets appraisal, as well as other practice are derived from them. However, due to some limitations, such as the character of the immature real estate market and the reality of information asymmetry among this industry, costs method is the most widely used in China so that more attentions should be paid to improve it.To appraise the value of a real estate property by cost method, we always use Reset Price multiplied by Depreciation Rate, while Reset Price is relatively easier to calculate, but the Depreciation Rate always becomes the most difficult part in the evaluation. At present, experts can estimate and determine the value after a field trip, collecting data and analyzing especially together with their own experience. Because each real estate property is diversity and hard to be appraised by the same way, it would result in some deviations according to different objective judgments. In order to reduce objective deviations, this dissertation is based on the following parts. First of all, I will introduce and summarize the development of cost method and its application in China and overseas real estate industry. Then I will focus on the determination of Depreciation Rate, through AHP and the Fuzzy Comprehensive Evaluation, trying to determine the Depreciation Rate quantitatively. In addition, AHP is proposed to calculate major factors of weight and importance while the Fussy Comprehensive Method to calculate the final result scientifically. So as to justify the feasibility of this method, a real case------Guangzhou Da Biao International Center which I took part in during the graduate study, is introduced and analyzed in the last part of this dissertation. By comparing different results from applying either traditional method or new cost method, there is a discussion of summarize and suggestions finally.