Are you worried an appraiser’s valuation of your estate won’t capture its real price? Many real estate appraisers determine a large chunk of the value by looking at recent sales of similar properties in the area. Unfortunately, this method doesn’t always accurately reflect any unique features that have been added to the property or historical structures. Homeowners can walk away feeling cheated for all the improvements they’ve invested in to bolster the property. Luckily, there is another option that does take these things into consideration. The cost approach method factors in the value of all its individual components, the depreciated value of the improvements and the underlaying land.
Let’s take a closer look at the cost approach formula and whether it’s the right appraisal method for your property.
The cost approach method
In short, the cost approach method looks at how much the property would cost new, subtracts the depreciation and adds that to the land value to determine the final property value. This method relies on the economic belief that smart buyers won’t pay more for a home than they would for a similar home with the same utility level. The cost approach valuation is ideal for new properties that are being used for the best purpose and highest potential. It doesn’t rely as heavily on comparisons to recent sales in the area, which makes it especially useful for valuing a special use property or one with several unique components that wouldn’t be adequately valued in a traditional valuation.
Here’s how a real estate appraiser in Napa County, CA looks at each component:
- Cost new: This can be defined in two different ways. The replacement cost new looks at how much it would cost to construct the building with the same utility using current materials, standards, designs and layouts. The reproduction option attempts to value an exact duplicate of the property with materials and construction practices in use at the time when the house was built. This will hardly affect recently constructed properties, but it will account for unique or historic properties that have a large cost difference between the reproduction and replacement costs.
- Depreciation: Any depreciation from the “new” cost will also need to be considered. This might include normal wear and tear, aging and anything that could reduce the property’s utility, such as a home with outdated plumbing or electrical wiring. The surrounding neighborhood will also influence the depreciation.
- Land value: Typically, the land value is determined by comparing the property to recently sold plots within the area. Any geographical features, such as a lake or proximity to a vineyard, could also impact the value.
Unlike other appraisal approaches, the cost approach methods don’t require an active market to work in your favor. Instead, it’s all based on the quality of the land and any improvements. It’s the best option for historical estates or large-acreage properties, like a vineyard or winery.
This is just a brief look at some of the methods used by County Appraisals Inc. Contact a real estate appraiser in Napa County, CA today to determine which appraisal type is right for you.
Categorised in: Real Estate Appraisals
This post was written by Writer