Real Estate Appraisal ? Do Your Own | Holiday Homes Europe?

For single family homes, you will find two basic techniques used in real estate appraisal. They?re replacement cost analysis, and using comparable sales. A third appraisal technique, based on capitalization, is used for income properties, and is covered in another article. In calculating replacement cost the question is: What would it cost to purchase this land and put this house on it? If the land (improved) would price $40,000, and the house might be built for $150,000, the value indicated could be around $190,000 ? if the house is fairly new. If it has used up 10% of its valuable life, you can deduct $15,000 for depreciation.

Replacement price isn?t really a very useful measurement. It?s difficult to say what the land is really worth in a city center where none is left for sale, for instance, and tough to gauge depreciation. It?s used as a secondary method, and for unique houses that can?t be compared easily with others. The primary technique of real estate appraisal used for homes is a market analysis using comparable sales.

Real Estate Appraisal 101

To get a good idea of what a home should sell for, you need to evaluate it to homes that have sold. Find at least three similar homes in the very same area that have sold within the last year, ideally within the last 6 months. This information is available in the county records, or from a real estate agent with access to the MLS (multiple listing service).

Now the confusing part. You start with the selling price of each of your comparables. If your topic home has a second bathroom, and the a comparable does not, you add the value of the bathroom to the sales price of the comparable. If a similar home has a blacktop driveway, and the subject home does not, you take the value away.

You?re correcting differences, to see what similar homes would have sold for if they had been like yours. Therefore if a comparable sold for $140,000, and a bathroom is worth $15,000 in your area (ask a real estate agent for help with these figures), you ADD $15,000 for the bathroom it does not have. Then you subtract, say $4,000, for the paved driveway it does have. This provides you a comparable sales price of $151,000.

You do this with all differences between the subject home and each comparable. When done, you average the 3 comparable prices. So if the three comparables have adjusted sales prices of $151,000, 162,000, and 149,000, you add the three figures and divide by 3. The indicated value of the home is $154,000.

Obviously all appraisal is an inexact science. In the event you can only find comparables sold over a year ago, you have to estimate appreciation in the area. If one sold with seller financing, you have to determine how this affected the cost. For all of it is flaws, nevertheless, for single family homes, this is the most accurate technique of real estate appraisal.

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