Abstract:
One of the most apparent signs of the international real estate crisis is the many unfinished construction investments. The various states and professional organizations are attempting to mitigate investment risks with regulations and methodology instructions, and, thus inspiring new confidence, to kick-start financing, which is the engine driving the real estate market. New methods and approaches are necessary in the area of real estate valuation also, to ensure that the market value of works in progress could be accurately determined at all times, thereby facilitating the management of risks and reinforcing the confidence of the investors.
The author of the article reviews and evaluates the methods with which the value of works in progress can be estimated well, and which can replace the static, simplistic approach currently used by appraisers. While comparative methodology is not suitable to tackle the problem, as the first practical step, in the net replacement cost based valuation approach the Market Value of the land, as value-forming factor, must continuously be examined. The income-based calculation approach can easily be made suitable for the determination of the Market Value of works in progress. If the works are suspended, the author suggests applying calculations with the probability trees as being the most efficient method for estimating the Market Value.
Keywords: Real Estate; Probability Graph; Risk Mitigation; Valuation; Work in Progress
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