Non-liner Adjustments by Real Estate Appraisal

Abstract

Real estate appraisal base among others on the comparison of area of real estates (e.g. apartments), particularly when the market comparison approach is used. For very similar real estates the adjustment for area can be made by commonly used linear manner, but for the comparison of rather differently big real estates a non-linear relationship should be considered as relevant. In the present article the non-linear relationship is discussed and an equation for non-linear adjustments is derived. The equation is based on the cost-to-capacity relationship, which is commonly used in machinery and equipment appraisal, but it is adopted for use in real estate appraisal. Equation is empirically verified on data from practice. Presented non-linear adjustment process should increase usefulness of the market comparison approach, particularly when the market is weak and comparable recently sold real estates are hard to find. The non-linear equations will give the appraiser more space to look for suitable comparable real estates. The results of the non-linear appraisal are very transparent and accurate as long as the power n of the non-linear equation is determined exactly for every region.