Purchasing a property comes with many responsibilities and tasks, whether you’re buying one as a residential or commercial property. Since real estate is a considerable investment, you need to be particular about your purchase’s features. Besides going through its geographic advantage and structural features, the bottom line will always land on how much a property costs.
How to know your real estate’s value through an appraisal
Although part of your loan and mortgage arrangements will depend on your credit score, a considerable part of owning a home depends on the property’s value. For this reason, appraisals are necessary to ensure loan providers that they are offering you with what you need for the right price. Different appraisal methods will apply based on the property you’re planning to purchase. This is why you must be familiar with what applies to your prospects.
In this article, we’ll share three home appraisal methods that loan providers may use to assess your home.
1. Cost appraisal method
The cost appraisal method applies mostly to commercial properties that won’t become an income property. It’s also applicable to large-scale construction projects that still need to be built or remodeled.
It’s a method that assesses the property separately to see its potential market value. After accounting for depreciation over time, there will be deductions on the value amount throughout the loan term. Besides looking at the property and land, a loan provider may also compare it with similar properties. These pieces of real estate can be a reference point for geographic or structural insights.
2. Sales comparison appraisal method
The Sales comparison appraisal method provides a fair value for a home to ensure that loan providers can offer an agreeable rate in its current setting. For single-family homes, the sales comparison appraisal method is standard. It requires an assessment of similar homes or “comparables” in the neighboring area to better estimate the property in question’s value. This is why it’s familiar to homeowners buying real estate in residential communities.
Afterward, adjustments on the price will come from differences between these properties. This will boil down to the property’s particulars in question and its unique interior and exterior components. For example, if your prospect has a newly remodeled bathroom, it can come with a higher appraisal value than its neighbors. Alternatively, if you’re purchasing a relatively older property in model and features, it may fetch a smaller price in the long term.
3. Income appraisal method
For commercial properties, the income appraisal method is necessary to assess apartments and office buildings. Since it’s mostly for tenant use, an appraiser evaluates the potential earning a property buyer could gain from the building’s capacity. A complex with several rooms uses comparative data to estimate the potential rate of renting or leasing each room to reach a potential gross income potential. Besides assessing commercial properties, it can also apply to structures that can hold double-family homes. These homes have enough space to be an income property by renting out spaces to tenants.
Receiving the appraised value of a property is necessary to begin the mortgage origination process. However, it’s best to find a quality appraiser to have a thorough assessment of the property you’re planning to buy. Alternatively, it can also be beneficial to assist property owners when selling their real estate.
If you’re a home buyer, investor, or commercial landlord who wants to navigate the real estate market, The Blake Hayden Group can give you a hand. Our Owensboro-based real estate agents can give you prime advice on how to handle your properties. Contact us today at (270) 244-6162 to learn more about our services.