Similar properties in a similar location and in a similar condition are used as a basis for comparison from which a reference value for the property can be derived. This method is suited mainly for the valuation of undeveloped land and owner-occupied flats or condominium units. It can only be used when a large enough range of comparable properties is present. It must be used in connection with the land valuation method described in § 16 ImmoWertV.

The income capitalization approach considers the value of the building, separately from the ground value, on the basis of the income generated by the property. The capitalized value shows the economic value of the property. It is determined by the capitalization of the yearly net income that can be achieved on the open market with the property. In the case of rented houses with multiple dwelling units and other investment objects, the capitalized value is the basis for determining the mortgage lending value. It is determined by adding the sum of rents and leases and deducting running costs. This method is used particularly in cases where the profitability of the property is a decisive criterion for the investment decision. The types of property which are bought and sold particularly with a view to the income they can generate include houses divided into flats, commercial property such as offices and shopping centres, business parks and what is often termed operator-management real estate and includes properties such as hotels, hospitals and leisure properties.

If the profitability of the site is not the most important aspect of determining the price, but rather the actual value of the property itself is of prime importance, then the cost approach can be used. The tangible value of a property is the sum of the value of the land, the building and the grounds. In the framework of the cost approach, the market value of the building is separate from the value of the land. The net asset value of the land and of the building structure are calculated, so that comparison selling prices and information on rents are not required. This procedure is regularly used for the valuation of single-family houses and two-unit houses, in particular because these are mainly owner-occupied. But commercial property such as manufacturing plants, industrial buildings or workshops, and special-use buildings such as shopping centres and hospitals can also be valued by this method. The material asset value is important for determining the mortgage lending value.

The DCF method is particularly suitable for observing changes in the value of a plot of land or an investment over a period of time, as it considers possible costs and revenue, investment and maintenance, and changes in the market. The DCF method relies on a prognosis for a large number of different factors. The value of the method lies in its explicit definition of cash flows for every year. The high degree of flexibility offered by the model allows the explicit modelling of changes which could manifest themselves over time. Over a period of time, income and costs for each year are recorded precisely and the cash values for the net operating income are determined. The cash flow is based on land and market data. Within this property valuation method, all income and costs are discounted on the day of valuation in order to establish the net present value. Property evaluation with the discounted cash flow method is interesting for investors in that it makes it possible to work out the future value of the investment on the day of purchase and with that to assess how attractive a given real estate investment is.

The residual method is used particularly frequently in a range of different investment planning scenarios. It allows a clear overview of the profitability of an investment, regardless of whether this is in a new building, the modernization of an existing building, maintenance work or a change of use. Building developers and project developers, especially, use this method to calculate the value of the land in connection with the optimal use of space. The aim of the residual method is the calculation of a residual value. This residual value is the maximum price that an investor can and will be prepared to pay for a site. It is calculated from the price a sale of the property could be expected to generate, less the cost of redeveloping the site plus the expected profit. The market value of the proceeds of the sale are appraised using the comparison method. If no comparable properties exist, the market value can be appraised using the income capitalization approach. The advantage of this property valuation method is that real factors and circumstances pertaining to the property, such as restrictions and encumbrances, can be considered. The calculation of the overall costs must be executed with great care, however, as these factors can have a disproportionate influence on the residual value.

The investment method also makes it possible to consider the impact planned investments on a site will have on the factors determining profits and costs. As such, it is a method for capitalizing the future profits which can be generated by the objects to be valued. In the ordinary course of business, these generate profits; such properties are usually capital investments. The method is used to appraise the present value of options which result from the possession of property under particular market conditions. In the world of property, such rights generally relate to future profits and/or future capital value. This method offers a valuable tool for testing investment decisions and investigating the profitability of planned investments.

Before property is purchased or sold, due diligence is carried out to ensure that everything is at it appears. Due diligence analyses are systematic audit procedures for the buying and selling of property.

In the case of investment objects and property portfolios, they form the third pillar of property evaluation and include a systematic analysis of the strengths and weaknesses of the relevant property, an analysis of the risks associated with the purchase and a thorough appraisal of the property itself. These checks can include auditing of balance sheets, the application of DCF systems, checks on human and material resources, examination of the strategic market-positioning of properties, legal, financial and location-related risks or environmental burdens. Due diligence involves the focussed search for "deal breakers" or issues which could stand in the way of a purchase. When risks are discovered, this can lead either to the end of negotiations or to the issues discovered being reflected in the agreement reached by the parties, for example in the form of a reduction in price or the provision of a guarantee. These technical and legal texts make it possible to secure your decision to purchase or sell.

The following key points can be listed:

1. Economic analysis: Examination of the regional market, the tenancy situation, the political situation (nationally and in the region) with a view to potential developments. Interpretation of economic trends and the status of economic cycles, assessment of infrastructure including macro location and micro location and with regard to town planning aspects.
2. Financial analysis: Investigation of current and past profitability which reflects the fluctuation rate and the creditworthiness of tenants and any relevant guarantors and gives a preview of future developments.
3. Legal analysis: Examination of the contractual situation with a view to possible risks. Facts relating to ownership and administration are verified and potential conflicts identified.
4. Tax analysis: Speculation tax resulting from the proceeds of a sale, the problematic area of property dealing and German transfer taxes.
5. Surveyor's analysis: The architectural quality and specifics of building law such as questions about guarantees, planning permission, inspection/approval and other aspects.
6. Facility management analysis: Examination of the management and operation of the facility with reporting of any potential for optimization discovered. The main aspects of this analysis, besides the auditing of management, are maintenance and energy management. The result is an assessment of the service level and profitability of the facility. The development of costs over the life-cycle of the property is also assessed.
7. Organizational analysis: This can be relevant if operator companies or fund management companies are involved.
8. Environmental analysis: Examination takes places if any possible contamination of the site in the past is suspected.
9. Analysis of market value: The market value is determined in accordance with the discounted cash flow method and the results fleshed out further through the use of another income capitalization method.
10. Supporting documentation: Photographic documentation, extract from land register, floor plans and section plans if applicable, list of all relevant literature, calculation of effective area.

Due diligence reporting is normally carried out by teams of different experts. In order to cover the entire spectrum of competencies required, we can assemble strong teams capable of due diligence analyses of large portfolios from our network of cooperation partners. We will present the results of your due diligence checks clearly and explain them to you.

Our portfolio evaluation is ideal for the cost-effective appraisal of large property portfolios in accordance with international valuation standards. It gives you an overview of the inventory of property and its market value. We rate individual objects and evaluate clusters and/or zones of property in packages with the help of discounted cash flow analyses and other relevant methods. Whether you need a yearly portfolio evaluation for property funds or the evaluation of a package of property which is to be sold, we will stand by you as competent partners and advise you comprehensively.

A competent valuation of the property is always useful in this situation, as the resulting report offers an objective basis for negotiations on price. No seller wants to sell below the market price, and buyer wants to pay more than necessary. An evaluation of the market value can clear up doubts about whether the asking price is too high or the selling price realistic.

The value of an investment object (such as a house divided into flats) must be determined in accordance with different standards to the ones that would be appropriate for valuing an owner-occupied property. The capacity of the investment to generate a profit is of key importance. This is determined both by the land value of the site and the long-term rental income it can generate. A professional valuation of the property should also be carried out in this case, in order to make sure that the planned investment in property brings the expected or promised level of profits – and, just as importantly – to analyse the value of the assets as a basis for mortgage lending or other forms of finance.

A valuation report can also serve buyers well in negotiations over finance with banks. As banks are often cautious in their mortgage lending, they often offer finance to cover a maximum of 80 per cent of the purchase price in order to avoid losing money in the event of foreclosure. 80 per cent of the market value is the so called mortgage lending value. This is the price which the house could prudently be expected to fetch on the open market in the long run. As such, it lies below the market value, except in times when the market is depressed. Mortgage institutions generally do not finance the full mortgage lending value through a first mortgage, but only sixty to eighty per cent of it. Professional evaluation can help the buyer determine the optimal value of the loan.