Tuesday, February 3, 2009

Real Estate Appraisals

Why Appraisals are so important?

Real Estate Appraisals are an estimate of a property's value by a licensed, disinterested third-party professional using one of many approaches to establishing the worth of a property.

1) Income Approach - looking at the per forma numbers: number of units, gross rent, expected return for an investor at ~10% Cap Rate.
2) Replacement Approach - how much it would cost to build it from scratch today - then back in depreciation schedule based on how many years it's been in place.
3) Comparable Analysis Approach - aka COMPS - The selling price of comparable homes in the neighborhood or near the property, in order to establish the market value of the property.