The Different Types of Home Appraisals: What You Need to Know


If you are thinking about selling your home, it is a good idea to get an appraisal. This will give you an idea of what your home is worth and how much you should expect to get for it. You can also use an appraisal to negotiate a better price with buyers. If you are buying a home, an appraisal can help you avoid overpaying for a property. No matter what your reason for getting an appraisal is, it is important to choose a qualified appraiser who uses the correct approach to complete your appraisal.

Sales Approach

The first type of home appraisal is called a Cost Approach. As you may have guessed, this method relies mainly on the total cost of the property in question. This approach is completed by taking the current value of the land, usually by referring to competition in the area or “comps” or by relying on the county values.

Once the appraiser has the value of the land figured out, he or she can then subtract any depreciation that has occurred. Depreciation generally does not occur with land, unless the land is being used incorrectly, the zoning changes or environmental issues reduce the usability of the land.

The appraiser will also add the estimated cost of construction to the value of the land. This is the total cost of the home to build again in its current condition. The result is the cost approach version of the Estimated Market Value (EMV) of the property.

Sales Comparison Approach

The second type of appraisal is called a Sales Comparison Approach. This approach uses recent sales data for similar properties to determine the EMV of a home. Appraisers will look at things like square footage, location, and amenities when comparing homes. Comps must be close in features, date of sale, and size to be used correctly.

If used correctly, this type of appraisal is generally the most accurate of the 3 for single-family homes. The location proximity means that usually the same schools, parks, and commercial areas are within range of the home for which the appraisal is being done.

Income Approach

The last type of appraisal is called an Income Approach. This approach estimates the EMV by looking at the potential income that could be generated from renting or leasing the property. The appraiser will consider things like the local market rent, the property’s condition, and its location when completing this approach.

This method is used almost exclusively for rental properties including apartments, duplexes and triplexes, and multifamily properties. This model also relies on the appraiser’s ability to predict future rental rates.

Each of these appraisal methods has its strengths and weaknesses. Some of these methods can be used together to form a stronger basis of value. Either way, it is important to understand all three to make an informed decision about your home’s value.

Experience Makes A Difference

It’s also vital to choose an experienced and qualified appraiser for the job. Inexperienced folks may incorrectly gauge the prices in an area, or forget specific details that are important to the appraisal, so make sure you’ve hired someone that knows what they’re doing.

If you need someone in the North Texas area, please give us a call. We’d love to help and we’ve got the experience and knowledge to get it right the first time.