Determination of capitalization and depreciation rates used in residential valuation: The case of Aydin province

A country's level of development depends on urbanization rate as well as the magnitude of its real estate market. The financial method, by which the real estate assets are appraised in a country on the other have, forms the basis of the market mechanism. Effective functioning of real estate finance and establishing a real pricing mechanism in the market are significant elements in increasing the diversity and reliability of the financial assets subject to purchase and sale. Determining the real estate prices accurately, subjectively and transparently in the market is only possible by conducting an appraisal for the real estate by experts on the topic. Appraisal provides many benefits to the sector's economy, legal structure and finance. However, the chief issue during a real estate appraisal is the lack of a model that meets all newly emerged requirements or that encompasses all factors that influence the value of the estate. The subject of this study is to compute the regional capitalization rate of residences bought and sold in the city of Aydın, district of Efeler through capitalization method, as one of the appraisal methods, and the depreciation rate based on age and number of rooms with another method called cost method. The study is original by being the first study that aims to calculate regional residence capitalization rate by using real purchase-sale prices in Turkey's housing sector and to identify depreciation amount through market extraction method. The findings of the study will be beneficial and provide a resource for appraisal experts or appraisal companies as well as academic researchers or institutions working on the same subject. According to the 805 real purchase-sale data obtained for eighteen neighborhoods in Efeler district of Aydın, the region's general mean capitalization rate was calculated as 4.98 %. When broke down to neighborhoods, the highest capitalization rates were observed in Orta Neighborhood with 7.30 % and Zafer Neighborhood with 7.17 %. On the opposite side of the scale, Zeybek Neighborhood exhibited the lowest capitalization rate with 3.95 % together with Mimar Sinan Neighborhood with 4.04 %. The rate of depreciation in the study was calculated for each building's age based on the number of rooms. The general rate of depreciation for residences with 2 Bedrooms and 1 Living Room was calculated between 2.81-58.52 % whereas the depreciation rate for houses with 3 Bedrooms and 1 Living Room varied between 2.63-60.39 %.