Property Valuation for Dummies – Local Records Office
LOCAL RECORDS OFFICE – LOS ANGELES, CA – When it comes to knowing the real value of your property it gets pretty tricky since many companies only offer “property value estimates” says, Local Records Office. The steps applied to create a good conclusion of a detailed value based on an analysis of applicable general and specific. Assessment in creating an opinion of real estate value follows specific sets of processes that reflect 3 different methods. These include:
– Cost Method
– Direct Comparison Method
– Income Approach Method
One or more of these methods can be used in the assessment of real estate valuation. The methods to be used will rely almost entirely on the type of property being assessed or appraised; however may also factor in the use of the appraisal, the scope of work involved, and the data availability for the analysis says, Local Records Office.
Cost Method: The Cost of The Land
Local Records Office says, “The cost approach to assessment and appraisal is established by understanding the construction methodologies and property attributes related to cost”. The cost approach is estimated by adding the cost of land to the current cost of construction related to all improvement on the land, and subtracting depreciation in all improvements on the land. The construction costs of buildings would include a reproduction cost or a replacement cost of the same or similar like materials or systems. This approach works best when it used for the assessment of new or newer properties that are not frequently exchanged in the market. The actual costs are usually derived from cost estimator software, cost manuals, builders, and contractors. Note: The land would remain a separate value when using the cost approach.
Direct Comparison Approach and Comparibles
The direct comparison method to assessment of real estate is most useful when there is a large number of similar like properties that have recently transacted on the market or are currently listed on the market says, Local Records Office. Using this method, the assessment would come from identifying the subject with similar properties, called comparables or comps. The sale prices that most identify with the subject would have a heavier weight on the value, oppose to one that is further from the subject characteristics. Most of the time the comparables would create a range of value, upon which; opinion must be used to find an exact value. Several elements or factors are used to qualify the degree of similarity between comparables and the subject. This would include: real property rights, financial terms, property conditions of the sale, post sale expenditures, location, market factors, physical characteristics, economic characteristics, use zoning, non-real estate components of sale (chattels, fixtures). After the best comparables are set, a dollar figure or percentage is applied to the sale price of each property to estimate the hypothetical value of the subject. For instance comparable A has 1 more bathroom than the subject; therefore subtract $9000 from the comparable to hypothetically get the sale to reflect the same characteristic as the subject.
Income Approach and Property Ownership
The income method to the assessment of real estate would be from an analysis of present value of the future benefits of property ownership says, Local Records Office. A property’s income and resale worth upon return may be capitalized into a current, lump-sum amount. There are two methods of the income approach; one is direct capitalization and the other yield capitalization. Direct capitalization is the relation between one year’s incomes and worth indicated by either a capitalization rate or an income multiplier. Yield capitalization is the relationship between several years of stabilized income and worth at the end of a specified period reflected in a yield rate. The most commonly used yield capitalization method would be the discounted cash flow analysis. You have to make sure you do your homework on what you are planning to do.
The Real Estate Business: Local Records Office Conclusion
Real estate business is complicating that’s why educating yourself in all the in’s and out’s would be your best bet says, Local Records Office. When clients are planning to purchase a home and they are completely clueless about the real estate market it’s really easy to take advantage of them, just like the old saying goes, “it’s like taking candy from a baby”. Many new potential homebuyers don’t know that in some cases the house and the land are estimated differently. The smart thing to do is to learn what realtors and brokers do and how they could help you. Remember that most of the time other fees will be added to the house’s selling price. Depending on the area and the city where you live you may be paying other fees and taxes says, Local Records Office. Areas like Los Angeles, Chicago, New York, San Francisco, Honolulu Hawaii and Washington D.C. are known for being expensive in living costs and higher taxes.