Three Approaches to Value
Every property appraisal draws on one or more of these three established methods
There are three ways to determine the value of anything: base it on the value of similar things, base it on the value of a replacement, or base it on the value that it brings in (ROI, or return on investment). Each of these methods is used in estimating the value of a property, depending on the type of property.
How much are similar properties selling for?
Sales Comparison Approach
This method is often used to estimate the value of single-family homes. Take the selling prices of similar properties in the area that were recently sold. Because every property is different, those selling prices don't perfectly reflect the value of your property. Add or subtract from the selling price based on the differences between the properties (like acreage, living area, upgrades, amenities, etc.). The adjusted sale prices of those properties should be similar to the value of your property. This is where the expertise of your appraiser plays a huge role — no computer can tell you how much your home's value increases because of your granite countertops or backyard pool. The answer depends on your neighborhood, the market, and numerous other factors. In order to get the most accurate appraisal, hire a local, professional appraiser that understands the specifics of your neighborhood and market.
How much income does the property produce?
Income Approach
This method is often used for income-generating properties, like apartment or office buildings. The income estimate of property value uses a more complex formula, but it's essentially a function of how much money the building generates annually. If a property has a steady, fairly predictable income, the future predicted income (which is the estimated property value) seems simple to calculate. However, as with any type of property appraisal, the specifics of each type can complicate the process. For example, an appraiser with income-based appraisals under their belt would understand that the condition of the property has an effect on future repairs (and therefore future profits), so it should also be factored into the estimate of value.
How much would the property cost to replace?
Cost Approach
This method is often considered to estimate the market value of new construction or new proposed construction. It determines the cost of rebuilding the property. Appraiser expertise is key, MCRA has with experience in valuation of new construction properties especially in rural area with a wide range of site sizes, construction quality, and square footage, including additional outbuildings.
While the three valuation approaches are three very different processes, they share a huge common factor — the need for an appraiser with specialized experience. Michigan Certified Residential Appraisers, LLC only accepts assignments that align with our appraisers' areas of expertise, so no matter your property type, you can be sure that we're qualified to appraise it accurately.
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