There are three classic ways to find the final estimate value for your property. Depending on what specific kind of property you are appraising, you may use one method in particular when calculating the final value over another. Let’s explain what these three methods are and when they work best!
Comparative method: Works best with single family homes because of the probable similarities of the homes around it. This method uses comps in the area that have recently sold or are listed. There will be an adjustment for amenities, acreage, etc..
Reproduction Cost Method: This method is best when used for specialized properties and new construction. “Specialized properties,” would be a structure such as a church or old firehouse. The reproduction cost method is also best for new construction because the land was probably recently purchased and there will be no depreciation to calculate. This approach is found to be less reliable with older construction. The reproduction cost method is best with specialized properties because these types of structures are not traded on the open market.
Capitalization Value Method: This approach is for all types of investment properties and is considered to hold the most value to an investor of the three. This is used when a property generates income for the owner. Apartment buildings and duplexes are examples of income-producing properties. This amount of income will help calculate the market value of the property.
Whether you are buying or selling, it’s imperative that you understand how to properly evaluate your property. These are three time tested methods that appraisers and investors can use.