To determine the value of a property, it usually takes a trained professional appraiser to get the job done. As I mentioned in my previous blog, too many variables are involved in evaluating the value of a property. Each of those variables can have impact on the accuracy of the appraisal. That is why you may want to spend three to four hundred dollars to hire a home appraiserto get a better idea on the value of your home.

But, if you don’t want to spend your money for an appraisal, there are other ways to help you get an estimate of your property value. But, before you start to evaluate your property value, I suggest you read my blog first, on how a real estate appraiser determines the value of a property, and then proceed. Read more

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Before I start talking about home appraisal, I’d like to warn you that this blog will be boring because it has too many technique terms. But, It is worth to read the whole blog if you do want to know how a real estate appraiser determines the value of a property.
 
First, let’s start with what determines property value. There are many factors impacting a property value. Some factors are objective and some are subjective.
 
The objective factors that influence the value of a property including things like the condition of the property, its location, size, market demand, and financing. They are objective and measurable.
 
The subjective factors are more difficult to quantify than objective. They are strongly depending on the emotions of the parties involved. Many sellers ask whatever price they believe their property is worth and many buyers aren’t willing to pay a price for a property based on its value, but on their emotions needs.
 
Because so many variables are involved in determining the value of a property,appraisers generally try to determine the property value in three ways. As a seller, you don’t need to become an appraiser. But, it will help you to know the different methods used by an appraiser.
 
The three approaches for property appraisal are:
 
·          Market Sales Approach: Examine at the price that similar properties have sold for recently in the same or similar neighborhoods and adjust the value based on square footage, age, construction, number of bedrooms, and amenities.
 
 
·          Replacement Cost Approach or Reproduction Cost Approach:  Estimate the cost of a building the same or a similar structure, and cost of land, and subtract wear and tear.
 
·          Net Income Approach: Determine the property value based on its income stream, basically the net operation income (NOI).
 
Appraisers reconcile these three approaches and give the most weight to the approach with best evidence of the property value. For example, for the single-family residential homes, appraisers give most weight to market sales approaches. For an apartment complex, appraisers give most weight to NOI approach.
 
Market Sales Approach
 
This approach determines the value of your home by considering the price that similar properties in neighborhoods have sold for most recently. This is the most accurate and reliable way of estimating the value of a single family home.
 
It is very important to focus on the sales prices most recently sold for in the analysis. The listing price does reflect the real value of a property.
 
In the analysis, your property is called subject property and properties sold are reference properties. There’re also three key factors impacting the accuracy of the appraised value. You must pay specific attentions to them when reading the appraiser’s report.
 
1)      Approximate in time the reference properties sold: The shorter the more accurate.
 
2)      Approximate in distance where reference properties located from your house. The closer the more accurate. The best reference properties are the similar houses within half mile or less.
 
3)      Closeness in similarity of your house with the reference properties. The more similar the properties, the more accurate.
 
Adjustments should be made based on square footage, age, construction, number of bedrooms, and amenities. A deduction or addition should be made from the value of the subject property if the reference property has different features from the subject property.
 
Example 1.  A reference property has four bedrooms and subject property only has 3 bedrooms. The approximate dollar amount of the value from this additional bedroom should be subtracted from the value of the subject property to make the adjustment.
 
Example 2. A reference property only has 2 bathrooms and subject property has 3 bedrooms. The approximate dollar amount of the value from this additional bathroom should be added to the value of the subject property to make the adjustment.
 
For detail information on how to read an appraiser’s report, visit my other blog by clicking http://besthomesellingtips.com/home-selling-101/appraising-your-home
 
Reproduction Cost Approach
 
This approach takes into account the current cost of building the same, or a very similar structure, the cost of land, less any wear and tear that the property may have. The first two factors are objective and relatively easy to estimate. While the last one is subjective and can sometimes distort the true value of the subjective property.
 
Costs of construction are estimated on the per-square foot basis. Usually, no attempt is made to estimate the actual costs of the construction materials.
 
Most appraisers don’t use the approach to appraise a single family home for sale.
 
NOI Approach
 
Net operation income or NOI approach is mainly used to determine the value of the income properties, such as multiple family homes or apartment complexes. It isn’t good to use this to determine the value of single family home.
 
The net operation income is the money that you would make if there were no debt or mortgage on that property you owned. The higher the NOI the higher the property value. You could increase the property value by decreasing the expenses and increasing the rental incomes and any other incomes related to the property.
 
For more home selling tips related articles, click following links:

How to price your home:
 http://besthomesellingtips.com/2007/07/19/how-to-pricing-home-for-sale-right/
 
Cheap ways to fix up your home for good returns.
http://besthomesellingtips.com/2007/07/11/ten-cheap-ways-to-upgrade-your-home-for-a-very-good-return/
How to hire a real estate agent:
http://besthomesellingtips.com/2007/08/14/how-a-right-real-estate-agent-looks-like-to-sell-your-home-fast/
 

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