A Capability Approach to Real Estate Valuation and Value Enhancement

Abstract

There are numerous financial metrics available in the academic and commercial world to estimate real estate value. Appraisers often use such metrics when advising on the purchase or sale of real estate at a point in time. The first part of this paper proposes a new metric, based on the capability approach, to make an ex-post single period valuation. Further, appraisers often give advice to their clients on actions to take in order to enhance the value of their real estate. This area of value enhancement has received scant attention in the academic literature. In practice, this advice is often based ad-hoc, anecdotal recommendations. The second part of the paper develops seven real estate strengths that can be targeted and provides an ex-ante approach to building real estate value. The valuation model presented in this paper is a pragmatic approach to enhancing both the values of tangible and intangible capabilities of a property by utilizing Expense Leveraged Value Indexes (ELVI).