There are a number of ways to value your home and several factors to consider. In general, the most important factor is the prices of recent sales in the area. There are three primary tools to consider:
Getting an Appraisal
Perhaps the most effective way to determine the value of your property is through an appraisal. Sellers may feel that a real estate agent’s determination of price is higher or lower than their opinion. The appraisal is a third party opinion. An appraiser has no connection to the property and no vested interest in a higher or lower cost.
In addition, an appraisal is going to be required in order for a buyer to finance the home. While the lender will chose an appraiser at that time, it is a good idea to have a sense of value in advance. Most appraisals will be consistent and most sellers would rather know in advance if the appraisal isn’t going to be able to reach their target value.
An appraiser may use any number of methods to determine value. The most common is a comparable sales approach which is similar in many ways to the Comparative Market Analysis conducted by a real estate agent but with a more standardized approach. In theory the appraiser’s training should also help to improve their accuracy. A second approach is cost based. A value can be determined by examining the cost to replace the structure and then adding the value of the land.
For income producing property the appraiser may also use an income approach to determine the value of the property based on the income produced. Typically a cap rate is selected and applied to the net income which is determined as gross income minus the standard expenses.
Disadvantage
Historically the primary challenge to appraisal has been cost. However, today the price of appraisals has declined dramatically. The cost of an appraisal varies based on the type of the property and can range from a few hundred dollars to several thousand.
