As a real estate investor, your goal is to make a profit on your property. Investor valuation appraisals can help you choose a listing price that maximizes your return on investment by reducing the number of days on the market. As the home appraisal experts, Stafford Appraisals uses three valuation methods to determine a property’s value.
The Sales Comparison Approach
The most common way appraisers determine a property’s value is by analyzing nearby comparable properties, often referred to as “comps”. Since identical properties that have sold may not exist, appraisers will identify similar properties that have sold recently. Due to the variations in comps, property valuation is not an exact science. This is why different appraisers may arrive at different values for the same property. Appraisals are estimates. They are not a guarantee of a specific price.
The Cost Approach
Unique properties or those in rural areas can be difficult or impossible to appraise using the sales comparison approach. Instead, the appraiser may use the cost approach to determine the cost to buy the land and build the home today.
It’s important to remember that the appraiser will factor in the property’s current condition. The appraiser will use a technique called depreciation to determine the worth of the home when compared to an identical new home.
Factors appraisers consider for depreciation:
- The home’s physical deterioration: Examples include old mechanical systems, old appliances and fixtures, and the condition of the structure.
- Functional obsolescence: An outdated way of building or structuring homes.
- Economic obsolescence: Neighborhood or other location-based factors that make the property less valuable.
The appraiser will use comparable sales to estimate the value of the land itself and the constructions costs replace the building. To reach a property valuation by the cost method, they will then estimate the amount of depreciation and subtract it from the value.
The Income Capitalization Approach
The value of certain properties, such as rental properties, lies in their ability to generate income. For these properties, their value is estimated based on their income potential.
Investor Valuation Appraisals
If you’re a real estate investor looking for a residential appraiser knowledgeable about the Dallas Fort Worth housing market, contact Stafford Appraisals today to learn how you can use their expertise to your advantage.