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Real Estate Appraisal Methodology

Methods used by Real Estate Appraisers

There are three main methods used to appraise real estate: the sales comparison approach; the cost approach; and the income or capitalization approach. While the sales comparison approach is commonly used in residential real estate, the cost approach is a better option when it comes to appraising newly constructed homes. The income approach is often used for commercial or income producing properties.

1. Sales Comparison Approach

This is by far the most common method for appraising residential real estate. The appraiser determines the approximate value of the property by comparing it to other homes or buildings that have recently sold in the area, also known as “comparables.” When unitizing this approach, the appraiser uses the sales price of the “comparable” as the base valuation and then adds to or subtracts from the base valuation to account for the unique features of each property. This method is often used for older homes because it also allows the appraiser to account for depreciation.

2. Cost Approach

This method of valuation is typically used to appraise new construction. With the cost approach, the appraiser works to determine how much it would cost to reproduce or replace the entirety of the new home or building and assigns a value accordingly.

3. Income (or Income Capitalization) Approach

This method of valuation is used to determine the potential value of income-producing property. It is typically used to appraise commercial real estate, like apartment complexes and office buildings. The appraised value takes into consideration the expected future income or capital that the property will generate, in addition to the resale value of the property.

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ProMatcher Staff, ProMatcher
Orlando, FL 32803

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