How Does the County Value my Home?
When valuing your home, the appraiser determines the age, quality, location, condition, style and size of your property. The appraiser then uses one or more of the following three methods to value real property:
The Cost Approach
This approach is most often utilized on new or unique properties. The cost approach to value is based on the concept that the value of a property can be established by adding the value of the land to the value of the improvement.
The cost approach is a way to appraise your property based on the cost, at current material and labor costs, to replace your property with a similar property. If your property is not brand new, the appraiser must also determine how much it has depreciated.
The Income Approach
The income approach is most commonly utilized for income producing properties (for example, apartment buildings, office buildings, and other rent producing property). This approach is based on the concept that the value of the property is related to how much income the property will produce over a duration of time.
For the income approach to be valid the appraiser must have accurate and current information on market rent / leases, vacancy rates, interest rates on mortgages, expenses that the property accrues, investor expectations, and other economic factors and trends that affect income generating property.
The Sales Comparison Approach (Market Approach):
This approach is the most commonly used for residential type properties. Utilizing this approach, the property being appraised (known as the subject) is compared to other properties with similar characteristics (known as comparable's) which have been sold within certain time limitations. The comparable sales must be valid sales: that is, they are arms-length transactions, with a willing and knowledgeable buyer and seller, and have been sold on an open and competitive market.
The Sales Comparison Approach involves making adjustments to the comparable properties. These adjustments allow differences between the subject and the comparable to be accounted for. For example, the subject property has 3 bedrooms and the comparable that sold only has 2 bedrooms, an adjustment to the comparable sale price would need to be made.
During the valuation of a property, a document called a Comparable Sales Report is created. This report shows the Cost and Sales Comparison Approaches that are used to determine the value of your home. To learn more about how to read a Comparable Sales Report click HERE.