Real estate valuation is one of the primary aspects if you are planning to buy or sell your home. While buying or selling a home, determining the fair market value or price plays an essential role that includes the loan amount, property taxes, insurance, and, most essentially, the final price of the home.
What is real estate valuation?
Real estate valuation is the process of determining the real value of real estate property. Apart from that, it also determines how much an investor must pay for the asset. Here if you talk about commercial real estate valuation, it has a team that helps determine the value of a property.
In real estate valuation Wanneroo, valuing different real estate properties is quite difficult as each property has unique features like floor plans, amenities, lot size, etc. Keeping this in mind, real estate valuation companies take the help of three approaches for valuation.
They are a sales comparison, income, and cost. It is recommended that when an appraiser or any other person wants to evaluate real estate, blend these three approaches to have an estimated value of the property.
Let’s discuss these three approaches to evaluating real estate: –
Sales comparison approach
Here if you are evaluating a single-family home, you must estimate market value based on 3 to 5 comparable properties. But ensure these homes must be in the same area, have the same size, and have sold within a few days. These are known as comps or comparable sales.
Here we know these properties cannot be the same, but we will make adjustments based on differences and similarities. They depend upon the right of the property, sale date, physical features, and many more.
This approach takes five steps to value the whole property. That means, in this approach, separate estimates are done for every single building and also the land while taking depreciation into mind.
The income approach
This approach is helpful for those buildings that generate revenue, like schools, apartments, etc. In this calculation, the net operating income of the building is divided by the capitalization rate, which will come in the form of return earned over time by the property.
The bottom line
If you are a mortgage lender, investor, insurer and buyer, or seller of real property, then accurate real estate valuation is essential. Based on these approaches, accurate property evaluation takes place that forms the basis of any transaction.