Highest 3 Real Estate Appraisal Methods

Investing or buying real estate is a unique process influenced by various factors. One influential factor is the property’s location. Another is its value. Knowing how your property’s value aligns with its actual price is crucial to potential buyers. That’s why cash home buyers like https://www.four19properties.com/tx/watauga/ take the right steps to determine a property’s value.

Fortunately, various appraisal methods are used, and each has unique benefits for different investment and asset approaches. The right technique can vary with investment strategy, provided property details, and asset class. Read on to find the best property appraisal techniques before selling your residence.

Sales Comparison Approach

Also known as the market data approach, this method is common among people selling single-family land and houses. They determine the property’s value by comparing it to a similar investment that was sold recently. A similar or comparable property must have the same characteristics as your property. For a property to qualify as comparable, it must:

• Resemble your property in terms of features.
• Have been sold under the same conditions and within the same year.

For this method to be effective, you need about four comparable properties. You must also consider the property’s location, comparable features, and size. The location of these properties can greatly impact your residence’s market value.

Since no two properties are alike, cash home buyers also consider the condition and age of the comparable properties. Most importantly, the comparable properties must have been sold under a similar condition as yours. This means they will never include any land or building sold under duress when determining your property’s value.

Income Approach Method

This appraisal technique is based on the fact that a property’s price should be determined by the cash it generates. It can be effective if a property can generate income in the future and its expenses are steady and predictable. For the income approach method, you can either use the yield capitalization method or the direct capitalization method.

Direct Capitalization Method

This appraiser can subtract the expense from the revenue generated by the property to get its NOI (net operating income). Next, you can divide the net operating income by the capitalization rate to get its value.

Gross Income Multiplier

Appraisers use this formula to determine the value of properties that can be rented and not as income properties. They relate a property’s value to its expected future rental income. For commercial properties, they consider annual income, and for residential properties, they use monthly income.

You can get GIM (Gross Income Multiplier) by dividing the sales price by the rental income. The sales price is the average price of three recently sold similar properties. Finally, you can multiply the GIM with the rental income for the correct market value.

Price Per Square Foot

This method will break down your property into its square footage. The price per foot can be determined by dividing a property’s value by its total area. Unfortunately, the value of a square foot of properties in two different states or neighborhoods can never be the same. This means you have to know the price of a square foot in your neighborhood to determine the value of your property.

Endnote

Several factors can determine the appraisal method picked by an investor. For commercial properties, you must consider the revenue it generates and a new property’s square footage or expected future revenue. On the other hand, appraisers use a sales comparison approach when dealing with single-family properties. This includes comparing the value of recently sold properties in your area that resemble your land.