Appraisal Methods
Most appraisers use three approaches to establish the value of a
property. The Sales Comparison Approach is normally considered to
be the best indication of value for residential property.
- Sales Comparison Approach: In this approach the
appraiser finds three to four comparable properties in the
neighborhood which have recently sold. Ideally, these properties
are within a one-half mile radius of the subject property and
have sold within the last six months. The appraiser compares the
sold properties to the subject property. The factors used in the
comparison include square footage, number of bedrooms and
bathrooms, property age, lot size, view, and property condition.
- Cost approach: This approach considers the value of
the land, assumed vacant, added to the cost to reconstruct the
appraised building as new on the date of value, less the accrued
depreciation the building suffers in comparison with a new
building.
- Income capitalization approach: In this approach the
potential net income of the property is capitalized to arrive at
a property value. This approach is suited to income-producing
properties and is usually used in conjunction with other
valuation methods. The process of converting a future income
stream into a present value is known as capitalization.
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