Anyone who has tried to value distressed properties over thepast few years knows the stress and difficulty in the process.After a fair amount of effort and frustration, you may have feltthat the value you came up with was just a shot in the dark. Whatapproaches work well and what do they entail? Let's look at sometraditional approaches to valuing real estate, including someconcerns and benefits of each.

A natural first step in valuing a property is to look atcomparable sales in the marketplace. The principle of substitutionseems like a reasonable thought, but transaction volumes havefallen drastically in recent years. While deal activity may havepicked up recently in some markets, a dearth of actual sales hasbeen the norm. Plus, some would argue that the few sales that dooccur are, by nature, distressed sales.

In any case, without any actual sales, or, at least, not enoughgood ones, many appraisers choose to consider listings. Listingsprovide another reference point for the appraiser, but what doesthe listing price represent? Is it the likely sales price? Whileit's true that in some overheated markets, properties may actuallysell for more than their listing prices, the reality is that manyproperties sell for below that, especially in a distressedsituation. So how much of a listing discount is reasonable? Lest weforget that real estate is a local business, it is important totalk to local professionals. Get as specific as you can about themarket and the property. There is oft en a story, and when thereis, it probably is not published on the listing page, so have thoseconversations. Once one understands the market, one can measure thebid/ask spread.