The cost approach can be used to appraise all types of improved properties. It is the most reliable approach to valuing unique properties. The cost approach provides an indication of value that is the sum of the estimated value of the land, plus the depreciated cost of the building and other improvements. The first valuation method used to assess the value of the property is the sales comparison method.
This method is used for standard single-family homes and is the most common method, since the information collected is necessary for a typical mortgage. The way a comparative sales valuation works is that similar homes in the surrounding area, also known as “Comparatives”, are used to get an idea of the value of similar surrounding properties. Then, adjustments are made to the appraised value based on the differences between the home you are buying and the comparable properties obtained. For example, let's say that the house you are trying to buy has a recently remodeled kitchen that is of higher quality than the properties to which it is compared.
This will increase your appraised value. On the other hand, if the home is in worse condition or on smaller land than similar ones, the appraised value will fall. This method helps ensure that a fair value is determined for the home and that the bank can go ahead with offering a purchase loan backed by value data.
A home valuation allows thebuyer and seller or refinancing companies to understand the fair market value of their property.
This can cause a gap in the valuation, which may result in the buyer having to make a larger down payment, paying the difference between the sale price and the appraisal price to obtain the loan and actually get the house. Appraisals are the most commonly used home valuation method for determining the fair market value of a property, but they are not the only option available. It's also worth correcting any visible aesthetic problems in the home before an appraisal to help accurately reflect its value. The appraisal price of a home can affect everything from the sale price to the size of the mortgage and the interest rate during refinancing.
Appraisers must comply with the guidelines of the Universal Standards of Professional Evaluation Practice (USPAP) and pass the relevant academic courses. Whether you want to buy, sell or refinance your home, a home appraisal is a key part of the process. If there are any problems, such as a significant gap between the selling price of the home and the appraised value, they may need to figure out how to close the gap: the seller lowers the selling price and the buyer allocates more cash to keep the transaction on track.