Every professional real estate appraisal in Costa Rica applies one or more of the 3 valuation approaches recognized internationally by International Valuation Standards (IVS). Understanding each helps you interpret your appraiser’s report and question inappropriate methodologies. This guide explains the 3 approaches with numerical CR 2026 examples.
Approach 1: Market comparison
What it is
Determines value by comparison with recent transactions of similar properties in the same area.
When it applies
- Residential properties (houses, apartments)
- Standard urban lots
- Retail spaces in zones with high sales turnover
How it works: real CR example
Subject property: 180 m² house in Curridabat, Residencial San Rafael Step 1. Comparables search: 4 registered transactions in last 6 months in the same residential
- Comparable 1: 170 m², sold $145,000
- Comparable 2: 200 m², sold $175,000
- Comparable 3: 175 m², sold $150,000
- Comparable 4: 190 m², sold $165,000
Step 2. Average $/m²: ($145,000 + $175,000 + $150,000 + $165,000) / (170+200+175+190) m² = $635,000 / 735 m² = $864/m²
Step 3. Adjustments for differences:
- Subject property state (good vs comparables): +3%
- Frontage and view: -2%
- Net adjustment: +1%
Step 4. Final value: 180 m² × $864 × 1.01 = $157,100
Strengths and limitations
- ✅ Easy to understand and communicate
- ✅ Based on real market prices
- ❌ Requires available comparables (hard for unique properties)
- ❌ Sensitive to comparable quality
Approach 2: Cost minus depreciation
What it is
Determines value as new replacement cost of construction minus accumulated depreciation, plus land value.
When it applies
- Specialized constructions without clear comparables (hotels, churches, custom warehouses)
- Relatively new properties
- Insurance appraisals (where replacement value matters)
- Complement to comparison in unique homes
How it works: real CR example
Property: 500 m² warehouse in Alajuela industrial, 10 years old Step 1. Current new construction cost: 500 m² × $650/m² (current warehouse cost in CR) = $325,000
Step 2. Depreciation:
- Physical: 10/40 years useful life = 25%
- Functional: design matches standard = 0%
- Economic: stable demand = 0%
- Total depreciation: 25%
- Depreciated construction value: $325,000 × 0.75 = $243,750
Step 3. Land value: 1,200 m² × $80/m² = $96,000
Step 4. Total value: $243,750 + $96,000 = $339,750
Strengths and limitations
- ✅ Works without direct comparables
- ✅ Objective basis for insurance
- ❌ Assumes cost = value (not always true)
- ❌ Depreciation has subjective component
Approach 3: Income capitalization
What it is
Determines value per the property’s ability to generate future income, discounted at market capitalization rate.
When it applies
- Income-generating properties (leased retail, offices, hotels)
- Airbnb vacation properties
- Real estate investment analysis
- Corporate IFRS valuation
How it works: real CR example
Property: leased retail space in Rohrmoser Step 1. Annual rent: Current lease: $2,500/month × 12 = $30,000/year
Step 2. Operating expenses:
- Maintenance, administration, insurance: 15% of rent = $4,500/year
Step 3. Net Operating Income (NOI): $30,000 - $4,500 = $25,500
Step 4. Market capitalization rate: Rohrmoser retail: 9% (2026 benchmark)
Step 5. Capitalization value: $25,500 / 0.09 = $283,333
Strengths and limitations
- ✅ Reflects real economic value for investors
- ✅ Useful for investment decisions
- ❌ Requires reliable comparable rent and cap rate data
- ❌ Sensitive to assumptions (expenses, vacancy)
When to use each approach
| Property type | Primary approach | Secondary approach |
|---|---|---|
| Standard residential home | Comparison | Cost (verification) |
| Condo apartment | Comparison | — |
| Urban lot | Comparison | — |
| Unique / high-end home | Comparison + Cost | — |
| Industrial warehouse | Cost | Comparison |
| Hotel | Capitalization | Cost |
| Leased retail | Capitalization | Comparison |
| Corporate office | Capitalization | Cost |
| Productive agricultural farm | Capitalization (per production) | Comparison |
| Vacant commercial lot | Comparison | — |
Triangulation: best practice
The best appraisal applies 2 or 3 approaches and reconciles results. If the three give similar values, high confidence. If they diverge significantly, the appraiser investigates why and uses justified weighting.
FAQ
Which approach gives the “correct” value? None is correct alone. Each addresses from a different angle. A good appraisal integrates multiple approaches.
Why did my bank reject an appraisal with only comparison approach? For commercial or industrial properties, banks typically require at least cost + comparison for robustness.
Which approach is most expensive to produce? Capitalization requires more research (rents, cap rates), so tends to have higher professional cost. Comparison is quicker in zones with many comparables.
Conclusion
The 3 valuation approaches for real estate in Costa Rica are complementary tools. A professional CFIA appraisal chooses the primary approach per property type and triangulates with at least one additional approach when possible. Díaz Peritajes applies rigorous IVS methodology in all appraisals. WhatsApp +506 7272-7270.