Real Estate Values Defined
Appraising a property’s worth focuses on assessing benefits derived in the long run from owning the piece of real estate. Home value estimation, thus, includes all social and economic trends, including government regulations pertaining to real estate. Another key factor that goes into worth is the condition around the environment.
There are also several additional factors to consider as far as real estate values are concerned. For example, the amount of demand for a property, its utilization, and its supply are all very important variables to consider. This all demonstrates that real estate values don’t necessarily refer to the actual cost or price of the property. For instance, if a property is dubbed to be in need of repairs upon assessment, the value can be lower than the property’s sales price.
Ways to Find Out Property Values
1. CMA (Comparative Market Analysis)
A CMA can be conducted for your property through a detailed and thorough analysis performed by a professional in the real estate industry. The real estate professional will conduct an analysis of homes recently sold. These homes are also called “comparables.” A comparative market analysis additionally covers all homes sold recently in a specific location over the past 6-12 months.
However, the CMA varies from one real estate agent to the other. Therefore, choose an experienced and successful realtor by setting up an interview. Important questions to ask include years in the industry, a portfolio with successful results, marketing strategies used, and previous clients’ satisfaction rating. It’s also important to know the realtor’s frequency of feedback and recommendations.
CMA Check List
A high-quality and accurate CMA should have the following criterions for comparable properties:
- Same square footage
- The same number of baths and bedrooms
- Location is the same as your property
- Same residential style
- Similar updates or upgrades
2. Property Appraisal
An appraisal for the home containing the written property value estimate can be purchased. An appraiser completes this and the cost ranges from $250-500.
3. Comparison of Sales Approach
This is similar to a CMA and is used for land and single-family homes valuation. Real estate professionals also refer to it as the market data approach. Recently sold properties are compared to your property to get the estimated value. The appraisal process commonly includes 3 to 4 properties.
The sales price of comparables is taken into account in cases where there are features which aren’t similar. These conditions include the age of the buildings and different neighborhoods. Also included are the differences between the date of sale to the date of appraisal, physical attributes of the property, and the terms during the selling process.
4. Cost Approach
The cost approach covers the estimated value of a property after making all modifications. It involves separate estimates for the value of the land and the building including depreciation. Then, add the two together to get the overall property value. This approach is suitable for non-income generating properties not sold frequently. These properties include churches, schools, government buildings, and hospitals.
There are five ways to determine your real estate values through the cost approach:
- Acquire the estimates for the land value.
- Get the estimates for all current costs in building modifications.
- Request the estimate for the depreciation amount due to deterioration.
- Deduct the depreciation.
- Add the land value estimate to the building’s depreciated cost and property improvements.
5. Income Capitalization Approach
The income capitalization approach involves the relationship between the net income produced by the property and the required rate of return by the investor. Estimating the value of income-generating properties such as commercial properties, office buildings, and apartments uses this approach. In addition, the appraisal using this type of approach can be more precise. This is because the subject property has the potential for future income and expenses are more or less stable and predictable.
6. House Value Sites (Free)
There are also several home value estimator tools available online which make comparable market analysis easier. However, for best results, couple these tools with the advice of a real estate professional. Using both resources is especially important given some data provided by these services isn’t consistently updated.
Author: Marco Santarelli