Real Estate Appraisal - Do It Yourself

 

Real Estate Appraisal - Do It Yourself

There are two simple ways used in appraising real estate for single-family homes. The two ways are replacement cost analysis and comparable sales. A third way to assess it is based on capitalization; this is used for income properties and is elaborated in a different article.

In figuring replacement cost the question is: What would it cost to buy this land and put this house on it? If the land (improved) would cost $40,000, and the house could be built for $150,000, the value indicated would be around $190,000 - if the house is fairly new. In case it has used close to 10% of its useful life, you can subtract $15,000 as depreciation.

Replacement cost is not actually a very suitable measurement. It is hard to say the value of the land in a city center where nothing is left for sale, for example, tough to measure depreciation as well. It is used as a secondary method, and for unique homes that can't be compared easily with others. The primary method of real estate appraisal used for homes is a market analysis using comparablea sales.

 Real Estate Appraisal 101

 To get a good idea of what a home should sell for, you need to compare 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 information is accessible in the county records, or from a real estate agent who has access to the MLS (multiple listing services).

Now the unclear part, you begin with the selling price of each of your comparable. In case your subject home has an extra bathroom, and the comparable doesn't, you add the value of the extra bathroom to the sales price of the comparable. If a comparable home has a blacktop driveway, and the subject home doesn't, you remove the value away.

You are correcting differences, to see what comparable homes would have sold for if they were like yours. Therefore if a comparables is sold for $140,000, and a bathroom is valued at $15,000 in your area (ask a real estate agent to assist with the value), you ADD $15,000 for the bathroom it doesn't have. Then you subtract, let’s say $4,000, for the covered driveway it does have. This provides you a comparable sales price of $151,000. 

You do same with all differences between each comparable and subject home. When done with it, you average the three comparables prices. Therefore, if the three comparable have adjusted prices of $151,000, $149,000 and $162,000, you add all the three figures and divide by three to get the average. The designated value of the home will be $154,000.

Of course, all appraisals are an inaccurate science. In case you can only see comparable sold over one year, you have to approximate appreciation in the area. If one sold with seller financing, you have to decide how this affected the price. For all of its flaws, however, for single-family homes, this is the most accurate method of real estate appraisal.