The appraisal of residential use properties are commonplace in the real estate market, and are usually commissioned to establish the market value of a property for financing and/or trading purposes. The appraisal is typically aimed at providing a price point that parties can structure their investment around. However, as in other appraisal scenarios, the applications for a residential appraisal are vast. These include, but are not limited to; expropriation, foreclosure, estate, mortgage renewal, divorce, assessment, litigation and new construction, etc.
The appraiser should be an objective third party who has no connection, financially or otherwise, to the parties or real estate involved. The appraisal should address; details of the property and its market, and speak to any issues that could have a negative impact on value.
Blake, Matlock and Marshal Ltd. provides appraisals for all forms of residential properties, including; single family homes, apartment complexes, vacant lots, acreage lots, new construction initiatives, renovation projects and recreational holdings, etc.
The three most common methods used are:
Direct Comparison Approach – A look at similar properties listed and/or sold, where the value can be converted into a unit price rate or equivalent by taking into account any differences that may affect the value. The appraiser will describe and classify the property, select appropriate properties for comparison when reconciling value.
Cost Approach – A look at replacement cost taking into account depreciation and/or obsolescence. The appraiser would estimate the value of land, estimate the replacement cost of improvements and take into account any depreciation. When property is highly unique and no data can be uncovered, greater reliance can sometimes be placed upon findings of this methodology.
Income Approach – A look at the future income potential of a property with different applications available:
- Gross Income Multiplier – A rough measure of the value of an investment property obtained by dividing the property’s sale price by its effective gross income.
- Overall Capitalization – The ratio between the net operating income produced by an asset and its expected rate of return.
- Discounted Cash Flow – A long term study of future rents over the going-in economic horizon of a property and of its residual land value, using inflators and risk rate applications.