The primary process of valuation of property is referred as real estate appraisal. The involvement of appraisal is a very complicated method and involves some of the methods that are preferred to determine the value. Which method is appropriate that solely depends on the property and the reason fair appraisal.
Appraisers and other valuation professionals make use of three methods to uphold the value of the property. Each of the methods is used differently and applicable for the different type of property. The three valuable methods are:
- The market approach search for what comparable property sells for. When it comes to cost approach, then what cost is required to build a property in considered. Last but not the least; an income approach takes into consideration the possible income that can be generated from the property.
The Three Valuable Methods:
- Sales Comparison process:
This is one of the most used and well-known methods. Sales comparison method is exclusively used for appraising real estate, mostly due to the reason of securing mortgage. It can be also termed as a market approach. In this method, the appraiser or the agents make use of other sale prices of the property in that area that are likely similar to the property has been raised for appraisal. The property with which the property is being compared is termed as comparables. For examples, if the property has three bedrooms and two bathrooms then, the comparable must be the same. Also, the distance should be very close to the property.
- Income Approach Method:
This procedure is applicable only in certain conditions. The primary condition is the subject properties are good enough to generate impressive income as rental incomes. The overall process centers on the ROI (Return on Investment) value. The ROI value is estimated by how much the property can produce. The appraiser or the agent calculates the gross potential income and then subtracts the expenditure and vacancy times to figure out the overall income that is obtained from the property. Followed by this, the appraiser puts a capitalization rate to estimate the total value of the property. For example, if the overall income is $100000 with the capitalization rate of 10 percent then, the property is priced at $1 million.
- Cost Approach Method:
The whole method is applied on the basis of how much the property would cost to build it today. A procedure is implied for this method to get done. Primarily the value of the property is determined. The value is calculated by using a market approach also by examining the prices of the comparable properties. Secondly the value is estimated by calculating the cost of the building followed by deducting the additional physical depreciation. This method is ideal for the properties that are specialized and unique.
Choose the Appropriate Approach:
Each and every approach is used in a different area. The income approach is mostly used for commercial areas and few properties that generate a handsome income like four-plexes. The cost approach method is used for new properties as the depreciation is minimum than old properties. Some of the unique properties for which getting a comparable property is very hard are oil refineries, vacation properties, etc. The sale comparison method is applicable for few properties like family residences where the many choices of comparable property will exist.
These are three techniques that are exclusively used for the valuation of property. For different property, the method applied is different.
Author’s Bio: Dean is a renowned writer and loves writing on real estate new. He suggests everyone to opt for the properties for sale Carlisle at a reasonable price.
