let’s talk : APPRAISALS – Finding The Value
Last we talked – what to look for in an appraisal. This week let’s talk about the different methods used to determine value in an appraisal.
So, as we do, let’s talk Real Estate, let’s talk APPRAISAL – FINDING VALUE…
There are three approaches to determine the value in a real estate appraisal.
(1) The Sales Comparison Approach
This method of determining property value is based on the recent sale of comparables (similar properties) in the market. The appraiser will look at similar properties and focus on their building size, lot size, amenities, and how recently the property was sold. Based on the comparables, the appraiser will make adjustments to determine the value of the subject property.
This the most frequently used approach.
(2) The Cost Approach
The value in a cost approach appraisal is determined by assessing how much it would cost to replace the property. If the subject property is new construction, the appraiser will determine the reproduction cost aka how much it would cost to rebuild that exact property. If it is an “older” home, the appraiser would look at the replication cost. The replication cost would tell us how much it might cost to rebuild a property of similar condition, while still taking into account the current cost of construction methods and materials.
This approach is best for new construction homes.
(3) The Income Approach
When a property is used to generate income, the value of the property is determined by how much income it can generate.
This approach is best for commercial buildings and rental properties.
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