Real Estate appraisals are estimate of the properties market value. Appraisals are valuable to buyers as they provide a non-baised assessment of a properties’ value as compared to others in the local area.
Appraisals are used to determine the risk of lending money for the purpose for buying a house. Banks use either a sales comparison, costing, or income method to estimate a properties market value.
Sales Comparison Method
In the sales comparison method, property appraisers compare the features of a property (number of bedrooms, size, number of bathrooms, etc.) against those of a recently sold houses in the local area. The premise here is that no sensible person would pay more for a property with identical features than they would for another.
Costing Method
This strategy uses the cost of construction for estimating a houses value. The buyer may even pay less than market value, claiming that the home has depreciated and would need further renovations.
Income Method
Used for properties that generate income such as as commercial and industrial. The evaluator gathers information on the property’s income by applying capital multipliers to the net operating income.
