Notes

What You Should FIND OUT ABOUT Real Estate Valuation
Estimating the worthiness of real estate is necessary for a variety of endeavors, including financing, sales listing, investment analysis, property insurance, and taxation. But also for most people, determining the asking or purchase price of a piece of real property may be the most useful application of real estate valuation. This article will provide an introduction to the basic concepts and methods of property valuation, particularly as it pertains to sales.

KEY TAKEAWAYS
Valuing property is difficult since each property has unique features such as location, lot size, floor plan, and amenities.
General real estate market concepts like supply and demand in confirmed region will surely play into a particular property's over-all value.
Individual properties, however, must be subject to appraisal, using one of several methods, to ascertain a fair value.
Basic Valuation Concepts
Technically speaking, a property's value means the present worth of future benefits due to the ownership of the property. Unlike many consumer goods that are quickly used, some great benefits of real property are generally realized over a long period of time. Therefore, an estimate of a property's value must take into consideration economic and social trends, in addition to governmental controls or regulations and environmental conditions that may influence the four elements of value:

Demand: the desire or need for ownership supported by the financial means to satisfy the desire
Utility: the ability to satisfy future owners' desires and needs
Scarcity: the finite supply of competing properties
Transferability: the ease with which ownership rights are transferred
Value Versus Cost and Price
Value is not necessarily add up to cost or price. Cost refers to actual expenditures ? on materials, for example, or labor. Price, alternatively, may be the amount that someone pays for something. While cost and price make a difference value, they don't determine value. The sales price of a residence might be $150,000, however the value could be significantly higher or lower. For example, in case a new owner finds a significant flaw inside your home, such as a faulty foundation, the value of the house could be lower than the price.

Market Value
An appraisal can be an opinion or estimate concerning the value of a particular property as of a particular date. Appraisal reports are employed by businesses, government agencies, individuals, investors, and mortgage companies when making decisions regarding property transactions. The goal of an appraisal would be to determine a property's market value ? probably the most probable price that the property provides in a competitive and open market.

Market price, the price at which property actually sells, might not always represent the market value. For example, in case a seller is under duress because of the risk of foreclosure, or if a private sale is held, the property may sell below its market value.

Appraisal Methods
An accurate appraisal depends on the methodical collection of data. Specific data, covering details regarding the particular property, and general data, pertaining to the country, region, city, and neighborhood wherein the property is located, are collected and analyzed to arrive at a value. Appraisals use three basic methods to determine a property's value.

Method 1: Sales Comparison Approach
The sales comparison approach is often used in valuing single-family homes and land. Sometimes called the marketplace data approach, it really is an estimate of value derived by comparing a house with recently sold properties with similar characteristics. These similar properties are referred to as comparables, and to be able to give a valid comparison, each must:

Be as like the subject property as you possibly can
Have been sold in the last year in an open, competitive market
Have been sold under typical market conditions
At least three or four comparables should be used in the appraisal process. The main factors to consider when selecting comparables will be the size, comparable features and ? perhaps most of all ? location, which can have a tremendous influence on a property's market value.
Since no two properties are exactly alike, adjustments to the comparables' sales prices will undoubtedly be made to take into account dissimilar features along with other factors that would affect value, including:

Age and condition of buildings
Date of sale, if economic changes occur between your date of sale of a comparable and the date of the appraisal
Terms and conditions of sale, such as in case a property's seller was under duress or in case a property was sold between relatives (at a low price)
Location, since similar properties might differ in cost from neighborhood to neighborhood
Physical features, including lot size, landscaping, type and quality of construction, number and kind of rooms, square feet of liveable space, hardwood floors, a garage, kitchen upgrades, a fireplace, a pool, central air, etc.
The marketplace value estimate of the topic property will fall within the number formed by the adjusted sales prices of the comparables. Since some of the adjustments made to the sales prices of the comparables could be more subjective than others, weighted consideration is typically directed at those comparables that have the least amount of adjustment.

Method 2: Cost Approach

The cost approach can be used to estimate the value of properties which were improved by a number of buildings. This method involves separate estimates of value for the building(s) and the land, considering depreciation. The estimates are added together to calculate the worthiness of the complete improved property. The cost approach makes the assumption that a reasonable buyer would not pay more for a preexisting improved property compared to the price to get a comparable lot and construct a comparable building. This process is useful once the property being appraised is really a type that is not frequently sold and will not generate income. Examples include schools, churches, hospitals and government buildings.

Building costs could be estimated in a number of ways, including the square-foot method where the cost per square foot of a recently built comparable is multiplied by the amount of square feet in the subject building; the unit-in-place method, where costs are estimated in line with the construction cost per unit of measure of the individual building components, including labor and materials; and the quantity-survey method, which estimates the levels of raw materials which will be needed to replace the subject building, together with the current price of the materials and associated installation costs.
For appraisal purposes, depreciation refers to any condition that negatively affects the value of an improvement to real property, and takes under consideration:

Physical deterioration, including curable deterioration, such as painting and roof replacement, and incurable deterioration, such as structural problems
Functional obsolescence, which refers to physical or design features that are no longer considered desirable by home owners, such as outdated appliances, dated-looking fixtures or homes with four bedrooms, but only 1 bath
Economic obsolescence, due to factors which are external to the house, such as being proudly located near a noisy airport or polluting factory.
Methodology

Estimate the value of the land as if it were vacant and open to be put to its highest and best use, using the sales comparison approach since land cannot be depreciated.
Estimate the existing cost of constructing the building(s) and site improvements.
Estimate the amount of depreciation of the improvements resulting from deterioration, functional obsolescence or economic obsolescence.
Deduct the depreciation from the estimated construction costs.
Add the estimated value of the land to the depreciated cost of the building(s) and site improvements to look for the total property value.
Method 3: Income Capitalization Approach
Often called this is the income approach, this technique is based on the relationship between your rate of return an investor requires and the net income that a property produces. It is used to estimate the worthiness of income-producing properties such as for example apartment complexes, office buildings, and shopping centers. Appraisals utilizing the income capitalization approach could be fairly straightforward when the subject property should be expected to create future income, and when its expenses are predictable and steady.

Direct Capitalization

Appraisers will perform the following steps with all the direct capitalization approach:

Estimate the annual potential revenues.
Take into consideration vacancy and rent collection losses to look for the effective gross income.
Deduct annual operating expenses to calculate the annual net operating income.
Estimate the price that a typical investor would pay for the income produced by the particular type and class of property. Browse this site is accomplished by estimating the rate of return, or capitalization rate.
Apply the capitalization rate to the property's annual net operating income to create an estimate of the property's value.
Gross Income Multipliers

The gross income multiplier (GIM) method may be used to appraise other properties that are typically not purchased as income properties but that may be rented, such as for example one- and two-family homes. The GRM method relates the sales price of a property to its expected rental income. (For related reading, see "4 Ways to Value a Real Estate Rental Property")

For residential properties, the gross monthly income is typically used; for commercial and industrial properties, the gross annual income would be used. Valuation Surveyor Redhill can be calculated as follows:

Sales Price � Rental Income = REVENUES Multiplier
Recent sales and rental data from at the very least three similar properties may be used to establish a precise GIM. The GIM may then be applied to the estimated fair market rental of the topic property to find out its market value, that can be calculated the following:

Rental Income x GIM = Estimated Market Value
The Bottom Line
Accurate real estate valuation is important to mortgage brokers, investors, insurers and buyers, and sellers of real property. While appraisals are usually performed by skilled professionals, anyone involved in a genuine transaction can benefit from gaining a basic knowledge of the different methods of real estate valuation.

My Website: http://b3.zcubes.com/v.aspx?mid=11604099