How to Appraise Your Own House

Out of three widely used valuation approaches, the market and income approach are most realistic for a non-professsional to perform.
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Home appraisal can be fairly complex and is best left to professionals, but by picking up on the right market indicators and by using common sense and standard procedures, you stand a good chance of approximating your home's fair market value. As with everything, the more data you gather and the more time you analyze it, the more sound the result will be. Start by searching online for actual appraisal reports for comparable properties to learn from.

Market Approach

If you see a lot of home sales take place in your area, the market approach will likely be the easiest to perform. This approach takes information from comparable home sales and applies this data with sales metrics to your home. Use data from transactions involving homes as comparable to yours in terms of location, quality and other factors. Obtain transaction prices and each home's square footage figures, and divide the former by the latter to determine market data on home value per square foot. If square footage is not available for the comparable transactions, use the number of bathrooms and bedrooms as a baseline for comparison. You can also use rough estimates for estimating square footage by using your own home as a frame of reference, and county assessors often provide this information online. Also, make sure to account for differences in lot size.

Market Approach - Value Reconciliation

If you were able to get square footage information, calculate average and median price per square foot multiples and begin adjusting them upwards or downwards for qualitative factors. These include age and quality, the number of trees in the yard, swimming pools and other home improvements. Appraisal is as much art as science. Fortunately, you're working with large numbers, so with each individual adjustment, the percent of total market value shouldn't be too large, minimizing the effect of any errant estimating you may have done. If you were not able to get square footage information, use the comps as a less quantitatively rigid guide to come up with a baseline value to which you can make your qualitative adjustments.

Income Approach

The income approach will be more difficult to implement. However, the rising trend of the rental of multi-family homes makes this approach increasingly relevant. The ultimate calculation you need to perform is dividing market rental rates in dollar terms by a capitalization rate. Capitalization rates are expressed as decimals or percentages. So, for example, if a home's market rental rate is $10,000 per year and the appropriate capitalization rate is 10 percent, the home's market value is $10,000 divided by 10 percent, or $100,000.

Obtaining Capitalization Rates

Search online for current appraisal reports in your locale that include an income approach from which to obtain capitalization rates. These may also be available online through appraisal and consulting firms, who often publish this data online in newsletters. The benefit of using these sources is that a real estate appraisal prepared by a professional should contain a strong analysis and review of how the rate was calculated. You can also contact your county property tax assessor for this information. This method is informally known as the survey method. If you feel that using a realtor's capitalization rate compomises your contribution or "ownership" of the appraisal, you can simply use it as a sanity check.

Asset Approach

Market cap rates can be calculated by dividing a home's annual rental rate by its fair market value.
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The asset approach is based on the principle of substitution. The premise is that the home is worth whatever its replacement cost is. This information can be difficult to obtain, but you can use obtain estimates from home builders familiar with the local market. The cost to build a home will vary based on numerous factors such as locale, transportation and administrative costs.

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