What is an alternative valuation approach mentioned in real estate finance?

In the context of real estate finance, the multiple method, often referred to as a market approach, is an alternative valuation technique. This approach involves evaluating properties based on the financial performance of similar properties, typically by applying a multiple to those properties’ earnings or revenues. It's particularly useful in commercial real estate for valuing income-producing properties, allowing investors to derive a property's value based on its ability to generate income relative to comparable properties.

The multiple method relies on market data and capitalizes on the principle of supply and demand, thus providing a straightforward way to estimate value by looking at what similar properties have historically sold for, often resulting in higher marketability and investor clarity.

Other approaches such as the cost approach, which calculates value by summing the cost of land and the replacement cost of improvements, and the discounted cash flow method, which assesses the present value of expected future cash flows, serve different purposes and are not classified as “alternative” in the same way. Comparable Market Analysis, while similar, is often used as a primary method rather than an alternative one, focusing on recent sales of comparable properties to help establish a value.