The value of your property is not the same as its price. In the real estate industry, property value refers to the actual worth of your home.
Property evaluation is an important part of the negotiating process between the buyer and the seller. If you are the buyer, this can give you an idea of the current state of the housing market. If you are the seller, this could help you determine a fair asking price.
Property value is also the basis for the following:
- Assessing property taxes
- Calculating profit from a property sale
- Determining collateral for a mortgage or home equity loan
- Estimating amount of rent to charge
- Computing property insurance premiums
Factors affecting property value
There are a lot of different factors to be considered when estimating property value. These include:
- Location (proximity to schools and other amenities)
- Desirability of your neighborhood
- Demand for your area
- Age of the property
- Square footage
- Layout of the building
- Number of bedrooms and bathrooms
- Additional fittings
- Condition of the property
- Wear and tear
- Land Registry data
- Market conditions
Home appraisal methods
A home appraisal should give you an idea how much your property costs. This is conducted by a professional who is highly skilled and experienced in evaluating property value – also referred to as the fair market value.
The most common method for appraising residential real estate, especially single-family homes, is through the sales history of comparable properties.
Your home will be compared to three or four houses that are of similar size, with similar amenities, and located in similar neighborhoods. The appraiser will review sales prices in the past 6 or 12 months as basis for your property value.
Appraisers may also estimate property value through cost analysis. This method estimates how much it would cost to build an identical structure at current prices.
Cost comparison is not used for residential or rental properties. It is a common method for appraising structures such as schools, government buildings, hospitals, and churches.
Another method for appraising residential real estate is by calculating how much money it brings in.
Income analysis is often used to determine the property value of an apartment complex, commercial real estate, and multiple dwelling units (MDU) such as condos and townhouses. Appraisal takes into account net income as well as return on investment on the property.
Before you decide to sell your home, consult with a real estate attorney on how to have your home appraised. An experienced real estate lawyer will help make sure all your rights are given due.
Written by The VanMatre Law Firm, one of the top real estate attorneys in Columbia, MO.