How to Estimate Home Values and Property Values
In these unsettling times homeowners and property owners are trying to determine the current market value of their residential property or any other real estate they may own. A property owner can hire a professional appraisal for an opinion or seek the advice of a real estate professional for a comparative market analysis. But how do these professionals arrive at their opinion of market value? At real estate school, and when taking classes to obtain my Certified Commercial Sales Specialist designation I learned the following.
Other People Are Reading
Instructions
-
-
1
Use the sales comparison approach. This approach is typically used when determining the value of residential property. The subject property is compared with recently sold comparable properties. Adjustments are made to compensate for the differences of the two properties by evaluating the subject and comparable's property rights, market conditions, conditions of sale, location, physical features and amenities, financing concessions, and the marketing conditions since the date of the sale.
-
2
Use the cost approach. This approach is typically used when determining an unusual property, such as a church building. Considerations include figuring in the value of the land, along with the current replacement construction costs, and deducting the estimated accrued depreciation from the construction cost.
-
-
3
Use the income approach. This approach is typically used when determining the price of an income producing property, such as an apartment building. The annual potential gross income is estimated, deductions are made for vacancies and rent loss which determines the effective gross income. The annual operating expenses are deducted from the annual net operating income. Mortgage payments, including principle and interest, are not considered operating expenses, they are debt service. Estimates are made to determine a price an investor would pay for specific rate of return on their investment, which is referred to as a capitalization or cap rate. The estimated value is arrived at by applying the cap rate to the property's annual net operating income.
-
1
Tips & Warnings
Accurate and current data must be used.
Automated online property value calculators should not be used as a substituted for a studied appraisal which calculates all factors.
Resources
- Photo Credit B.Holmes
More Like This
Comments
-
cadence
Dec 13, 2008
Fantastic tips.
