Estimating the value of real estate is necessary for a variety of endeavors, including financing, listing sales, investment analysis, property insurance, and taxation. But for most people, determining the asking or buying price of real estate is the most useful application of real estate appraisal. This article will provide an introduction to the basic concepts and methods of real estate appraisal, particularly as they relate to selling.
Key points to remember
- It is difficult to appraise real estate because each property has unique characteristics such as location, lot size, floor plan and amenities.
- General real estate market concepts like supply and demand in a given area will certainly play into the overall value of a particular property.
- Individual properties, however, must be appraised, using one of the following methods, to determine their fair value.
Value versus cost and price
Value does not necessarily equal cost or price . Cost refers to the actual expenditure – for materials, for example, or labor. Price, on the other hand, is the amount someone pays for something. Although cost and price can affect value, they do not determine value. The sale price of a house may be $150,000, but the value may be significantly higher or lower. For example, if a new owner discovers a serious defect in the house, such as a faulty foundation, the value of the house could be lower than the price.
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