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Property Valuation for Home Buyers: Overview and Conclusion

An Overview

The Comparable Sales Method focuses on market data of sales of similar property in a recent time period and thus gives an estimate of which price is adequate for a particular kind of property. Sales comparisons can easily be performed using the internet database mouseprice.com. The advantage of this method is that it reflects the actual market prices, but it neglects whether or not a property investment is profitable for seller and buyer.

The Income Approach concentrates on the profitability of a property purchase. It analyses the present worth of projected future net income and anticipated future re-sale value. This method gives a good appraisal of whether a certain property is worth its price to the buyer, but it neglects the relation to the overall market.

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. But it neglects far too many factors to be a useful method of valuation.

In order to obtain a good estimate of value for a property it is necessary to employ both the sales-comparison and income methods.

Conclusion

It should be clear by now that 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 for home buyers on how to estimate the approximate worth of a house. By performing an independent valuation, you will be able to assess whether the property you are looking at is over- or under-valued, and whether the investment is profitable for you. It is generally recommended that you do not buy a property without first doing a thorough valuation. In order to obtain a reliable and accurate estimate of value, you will have to use both the Comparable Sales and the Income Methods of valuation.

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