The purpose of a real estate appraisal influences the execution of the appraisal process by determining the appropriate method of appraisal. There are three main approaches to real estate valuation:
- Market method: This method is based on comparing the appraised property to similar properties in the market.
- Income method: This method is based on the present value of the expected future income from the property.
- Cost method: This method is based on the cost of reproducing or replacing the property.
The most appropriate method of assessment is chosen based on the purpose of the assessment. For example. If the purpose of the appraisal is to determine the value of the property for tax purposes. The market approach is likely to be the most appropriate one. If the purpose of the appraisal is to determine the value of the property for financing purposes. The income approach is likely to be the most appropriate.
Here are some examples of how the purpose of the assessment influences the implementation of the assessment process:
- If the purpose of the appraisal is to determine the value of the property for the sale or purchase of the property. Information about the property itself is likely to be collected. such as its type, size, and location. In addition to information about the real estate market in the region. like the prices of similar properties.
- If the purpose of the appraisal is to determine the value of the property for financing purposes. Information about the property itself is likely to be collected. In addition to information about the expected income from the property. such as rent or dividends.
- If the purpose of the appraisal is to determine the value of the property for tax purposes. Information about the property itself is likely to be collected. As well as information about the area surrounding the property. Such as available services and facilities.
And in general. The purpose of the appraisal is the most important factor that influences the execution of the real estate appraisal process.
