Home Buying in 97338>Question Details

Sandra Mcdow, Other/Just Looking in Salem, OR

What is the basis for arriving at an appraisal amount?

Asked by Sandra Mcdow, Salem, OR Wed Nov 28, 2012

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A good appraisal should cover the three main theories of asset valuation: replacement cost, sales comparable, and income. While estimates of value are derived using all three approaches, usually one is more useful than others. The appraiser will likely select one for you based on the following:

For a single family home, the sales comparables would show you what the closest matched home recently sold for. This gives you the best estimate of what somebody would pay for your home. But, it still has serious limitations in that the sold price is a snapshot of the market in history, usually at least 3-4 months ago. So, prices may have moved significantly in the meantime.

For an investment unit, the income approach is best since the largest target market of buyers are other investors and they value properties based on income generated.

The replacement cost approach is really useless in real estate, except for the insurance company's sake. A 50 year old home may cost $500K to replace but has only $50K in value to buyers.
Web Reference: http://www.archershomes.com
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