If you're buying or selling a home, you may be familiar with the need to have a property appraisal. When lending is required, the bank or your mortgage company will hire a professional appraiser to evaluate the home that you are buying or selling. While this process may seem mysterious, there is a very standardized system to providing value to a home. Here are the principles that guide the process.
Principle of Highest and Best Use: This principle states that the value of a property is determined by its most profitable use, which may not necessarily be its current use. Appraisers consider the potential uses of the property and evaluate which one would generate the highest value.
Principle of Supply and Demand: The value of a property is influenced by the balance between the supply of similar properties in the market and the demand for them. Appraisers analyze market trends and assess how supply and demand dynamics impact the property's value.
Principle of Substitution: This principle suggests that a buyer would not pay more for a property when there are similar properties available at a lower price. Appraisers consider the cost of acquiring a similar property as a benchmark for determining the value of the subject property.
Principle of Conformity: This principle states that a property's value is maximized when it is in harmony with its surroundings. Appraisers assess how well the property conforms to the neighborhood and evaluate any factors that may impact its value positively or negatively.
Principle of Anticipation: This principle recognizes that the value of a property is influenced by the anticipation of future benefits or changes in the area. Appraisers consider factors such as upcoming developments, changes in zoning regulations, or economic trends that may impact the property's value.