Although determining the value of a property is the first step before buying or selling, it is not as straightforward to do as it sounds.
You could ask four different appraisers to value your property and get four different answers. To help you better understand why this can happen, we’ve put together information on what you need to know about determining your property’s market value.
What Is Market Value?
The market value is a professional opinion of how much a property is worth. Market value is quite subjective since it involves opinions. For example, a seller might feel a historical fireplace adds value to their property. However, the buyer may see it as a negative value because it is a hassle to clean. Another example is a property with no garage but is close to public transportation will be of higher value to someone who doesn’t drive than someone who has a car.
Market Value vs. Market Price
Although sometimes used interchangeably, these two terms are not the same. The market price of a property is the actual amount a seller sells their house. In other words, it is the price a buyer and seller agree on in the final sale. The market price can end up being more or less than the market value depending on real estate trends.
The market price of your property is influenced by supply and demand. When supply increases and demand decreases, the price will go down. When supply decreases and demand increases, the price will go up. In a situation where demand is increasing, the market value of a property can influence the price. In a buyer’s market, the market price will generally outweigh the market value.
Calculating Your Property’s Market Value
There isn’t a universal way to determine the market value of your property and, depending on the property type, appraisers will use different methods. Generally, every valuation process will look at an appraisal of the property and recent comparable sales. One example of a property value calculator is Zillow’s free Zestimate. When appraisers do a detailed valuation, they will often use one of the three main methods explained below.
1. Sales Comparison Approach
This approach compares your property with other similar properties that were recently sold. It considers all property features, including:
- Property size
- Number of bedrooms and bathrooms
- Year built
2. Replacement Cost Approach
This approach calculates how much it would cost to rebuild the property using modern construction materials. It is based on the theory that nobody would pay more than the cost of building the same property from the ground up.
3. Capitalization of Income Approach
This approach is usually for commercial properties since it looks at the future investment benefits. It connects the property’s value to its resale value and the rent you can expect to earn with it.
We hope this information helps you take the guesswork out of determining your property’s value! As always, feel free to contact us for more information or assistance.
– The Zion Team
Phone: (858) 324-1951 | To schedule a meeting or call, click here.