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There are 3 basic methods used to value real property and
other assets: (1) The market-data, or sales comparison,
approach; (2) the replacement-cost approach; and (3) the
capitalization-of-earnings approach. See Marine v. Commissioner,
supra at 983.
The market-data approach entails a comparison of the subject
property to similar properties sold in the same time frame and
geographic area. Differences which make a comparable property
superior or inferior to the subject property are accounted for by
adjusting the sale price of the comparable property downward or
upward, respectively. See Estate of Spruill v. Commissioner, 88
T.C. 1197, 1229 n.24 (1987); Estate of Korman v. Commissioner,
T.C. Memo. 1987-120. The validity of this valuation method
depends to a great degree upon the comparables selected and the
reasonableness of the adjustments made thereto. See Wolfsen Land
& Cattle Co. v. Commissioner, 72 T.C. 1, 19-20 (1979).
The replacement-cost approach begins with an estimation of
the value of the underlying land and then adds the cost of
constructing equivalent improvements thereupon as if the
improvements were new. From this figure is subtracted the amount
that the existing improvements have diminished in value due to
physical depreciation or obsolescence. Marine v. Commissioner,
supra at 983.
The capitalization-of-earnings approach to valuation is
premised on the theory that the value of property correlates with
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