Summary of the Methods
The Comparable Sales Method focuses on market data of sales of similar property in a recent time period and thus gives an indication of current market value for a particular kind of property. Sales comparisons can easily be performed using data found in mouseprice.com and by conducting individual research. The advantage is that it reflects the actual market prices, but it neglects whether or not the market value corresponds to the value attached to the property by either the seller or the buyer.
The Income Method concentrates on the intrinsic value of a property purchase. It analyses the present worth of projected future net income and re-sale value. This method gives a good appraisal of whether a certain property is worth its price to an individual, but it does not indicate the market value of the property.
The Cost Approach lies somewhere between the two previous methods and is not actually an autonomous technique of value analysis. It estimates property value by adding the cost of the land to the replacement cost of the building minus depreciation, thus coming up with a figure of how much the property should be worth.
In order to obtain a good estimate of value for a property it is necessary to employ both the sales-comparison and income methods.
There is no perfect method of assessing the value of a property. Appraisal is an art as much as a science, and in the end it is supply and demand which determine the actual selling price of a house.
Nevertheless, the methods discussed above provide guidelines to both buyers and sellers on how to estimate the approximate worth of a house. This helps sellers decide where to set the price for their property and provides buyers with means of deciding whether a particular property purchase is sensible.
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