🏠 כשהשומות מתפצלות – כך תזהו בועת נדל"ן על פי גישות השומה

This blog was compiled based on research we conducted - during the writing of the book Real Estate Bubble.

What happens when three moles disagree?

When a real estate appraiser is required to determine the value of a property, he can use three main approaches:

1. The comparison approach – is based on prices of similar transactions.
2. Income approach (discounting) – value is based on future rental flows.
3. Cost approach – valuation based on reconstruction cost + land value.

Ostensibly, the three methods are supposed to converge to a similar value. But when the gap between them is abnormal – for example, the comparison approach yields a value 30% higher than the income approach – there is reason to suspect that this is an inflated market, and perhaps even a real bubble.

Are gaps between approaches an indicator of a bubble?

The answer: Absolutely yes – especially when valuation gaps widen without fundamental justification. In real estate bubble situations, the comparison approach is based on market transactions that are inflated by themselves. In contrast:

• The income approach remains true to the facts: rents do not jump in line with prices.
• The cost approach reveals the gap between the market price and the real cost of construction.

When the differences between the approaches are around 20%–40% or even more – this is a warning sign. The “market” value loses touch with the real economic value.

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