Real Property Appraisals/question
what are top 3 methods anyone without an appraiser background can use to appraise the value of real estate or anything else?
what is the difference between appraisal and valuation that finance professionals use
I apologize for the delay in responding, I've been swamped with appraisals to finish and just couldn't get to this answer.
There are three methods, or as we refer to them: "Approaches", to the valuation of real estate that are used by appraisers. These are the Cost Approach, the Income Approach and the Direct Comparison Approach. All of these approaches take considerable education and experience to complete.
For the lay person, the Direct Comparison Approach is the easiest to utilize. You have to have access to listings and sales in your market area. If you're not an Agent, you can ask an Agent friend, or an Agent who specializes in your area to print out a selection of listings and sales similar to the property you are trying to value.
Let's say you would like to value a 1500 SF house with 3-bedrooms and 2-baths, located on a 7500 SF lot, built in 1990. This is called in our jargon, the Subject Property. You could ask your Agent friend, or an Agent in one of the best offices in your area to print out listings and sales for houses in the 1200 SF to 1800 SF size range that have sold in the past 1-year, that are 3-bedroom, 2-bath homes located on lots from 6000 SF to 10,000 SF.
Taking these print outs, you would then drive-by each of these comparables and note the condition, appearance, and appeal of each comparable. If you look at enough comparables, you can probably get a general idea as to where the value range is of the Subject Property.
You won't be able to make the adjustments that appraisers make because you don't have the knowledge as to how this is done. However, you can separate the comparables you have into superior and inferior to the Subject Property.
Let's say the Subject Property is in average condition. One of the comparables you got from the Agent sold for $400,000, was larger and fully remodeled. This home would be superior to the Subject Property and would most likely set upper limits of value. Another home sold for $350,000 and also might be larger, but was a bank foreclosure and needed lots of work. This home would be in inferior condition and would most likely set lower limits of value.
This method is called "bracketing" and is another way appraisers look at comparables. What you want to do is bracket the house you are trying to appraise within superior and inferior comparables. When you lay out all of the comparables, you should be able to discern a range in value in which the home you are trying to value should fall. In our example above, the Subject Property's value would fall somewhere between $350,000 and $400,000. By looking at many comparables, you would probably be able to narrow down this range.
Another source you can tap is Zillow. Bring up the property you are trying to value in Zillow and the program will give the property Zillow's "Zestimate". Keep in mind that Zillow uses a statistical methodology that looks at properties in all the neighborhoods in a Zip Code to make their estimate. Therefore, consider that Zillow is giving you a value within a large ball park and may not be accurate.
The Direct Comparison method is the best because you are selecting only comparables within the neighborhood where the Subject Property is located; properties that directly compete with the Subject Property.
With respect to your final question: I'm not quite sure what you mean as to what the difference is between appraisal and "finance professionals". Each profession would use the same methodologies. CPA's may want to value a property based upon its income potential, the Income Approach, but would use the same methodology.
Perhaps when you read this, you could give me a follow-up with more explanation about what you were looking for and I'll be happy to respond again.
John C. Carlson