For singular family homes, there are two basic methods used in real estate appraisal. They are transfer cost analysis, and using comparable sales. A third evaluation method, based on capitalization, is used for income properties, and is covered in an additional one article.
In figuring transfer cost the quiz, is: What would it cost to buy this land and put this house on it? If the land (improved) would cost ,000, and the house could be built for 0,000, the value indicated would be colse to 0,000 - if the house is fairly new. If it has used up 10% of its beneficial life, you can deduct ,000 for depreciation.
Do It Yourself
Replacement cost is not authentically a very beneficial measurement. It is difficult to say what the land is worth in a city center where none is left for sale, for example, and tough to gauge depreciation. It is used as a secondary method, and for unique homes that can't be compared authentically with others. The customary method of real estate evaluation used for homes is a shop diagnosis using comparable sales.
Real Estate evaluation 101
To get a good idea of what a home should sell for, you need to correlate it to homes that have sold. Find at least three similar homes in the same area that have sold within the last year, preferably within the last six months. This facts is available in the county records, or from a real estate agent with passage to the Mls (multiple listing service).
Now the confusing part. You start with the selling price of each of your comparables. If your field home has a second bathroom, and the a comparable doesn't, you add the value of the bathroom to the sales price of the comparable. If a comparable home has a blacktop driveway, and the field home doesn't, you take the value away.
You are rectifying differences, to see what comparable homes would have sold for if they were like yours. So if a comparable sold for 0,000, and a bathroom is worth ,000 in your area (ask a real estate agent for help with these figures), you Add ,000 for the bathroom it doesn't have. Then you subtract, say ,000, for the paved driveway it does have. This gives you a comparable sales price of 1,000.
You do this with all differences between the field home and each comparable. When done, you mean the three comparable prices. So if the three comparables have adjusted sales prices of 1,000, 162,000, and 149,000, you add the three figures and divide by three. The indicated value of the home is 4,000.
Of procedure all evaluation is an inexact science. If you can only find comparables sold over a year ago, you have to evaluation appreciation in the area. If one sold with jobber financing, you have to decree how this affected the price. For all of it's flaws, however, for singular family homes, this is the most literal, method of real estate appraisal.
Real Estate evaluation - Do It Yourself