Eugene D. Lanier, Inc. - Page 15

                                       - 15 -                                         
               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           




Page:  Previous  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  Next

Last modified: May 25, 2011