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Various Types of Property Valuation Process and Methods

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    Types of Property Valuation Process and Methods

    The amount of money to pay for a particular real estate property is often the first thing that comes to the mind of people about real estate investment. Property valuation is simply the pricing of any real estate property. Another name for property valuation is real estate appraisal. You should know many property valuation methods and processes, but we will consider the significant three in this article.

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    What is a Property Valuation?

    This is the process of determining the economic value of real estate investing. It defines a real estate property’s fair market value or the actual price a seller who is informed is willing to sell his real estate property to a buyer who is also reported. This means that both the buyer and seller have the essential information.
    It also means none was either forced to buy the real estate property or sell it. Nevertheless, you must know the value of a property is not the same as its price. An example is this: a distressed seller can wake up one morning to sell his property below the fair market price.

    The Benefits of Property Valuation

    The importance of property valuation can’t be overemphasized. It determines the amount of property insurance and property taxes to be paid. Also, a home appraisal is required by a mortgage lender before a loan is given or provided. This serves as protection for the potential buyer not to pay high for the real estate property. It also protects the bank from having to finance a real estate property worth below the amount invested in. A property valuation is needed during divorce legal matter settlement, lawsuit, and real estate settlement.

    The Cost of Property Valuation and What it Takes to Be Done

    Only a certified professional appraiser is meant to perform a property valuation. However, an investor in real estate can do his property valuation. Price can go higher if the property is more prominent in size.

    Approaches for Property Valuation

    There are three major approaches to property valuation. They are:

    The Income Approach

    This is the standard property valuation method common in commercial rental properties and real estate. The idea is to have the current value of any real estate calculated by the net income it will generate, then divided by the capitalization rate.

    The Sales Comparison Approach

    This approach uses sales prices market data to evaluate a real estate property’s value. A property valuation is carried out in this method by comparing a property to other similar properties sold recently.

    The Cost Approach

    The cost approach property valuation considers a property’s value as the land’s cost-plus construction costs (replacing the property) minus the functional and physical depreciation. This real estate property valuation method is commonly used for not being sold quickly, like hospitals, government buildings, and schools