How is established by the understanding of

How to Value Residential Property home.In real estate investment, the question of how to value the real estate property always come to mind. Real estate market values are determine by what’s known by real estate appraisaler as COMPS or comparables. This is a single best tools in determination of real estate property. Different methods can be applied in the valuation of residential real estate, these methods includes  direct comparison, cost method and income approach method.Direct comparison method:Direct comparison method is a kind of method in which comparism is achieved by comparing the subject residential house against the recent sales that happened in the markets. Recent here, implies 6 months or 3 months in a fast inclining and inclining market. The valuer of the property must be mindful of some physical features of the property. Such physical property to be noted includes the size, shape of the residential house, topography, soil composition and most importantly utility of the land. Apart from physical features most valuer consider the age, size,condition, quality and layout.  Location of the residential home is the major determining factors in the valuation of real estate property. How does the location affects the value?The location has an adverse impact on  valuation as issue of roads, rail lines, transmission lines, effect of bushfire and flooding, clusters of public housing and proximity to correctional facilities. It is important to find sales evidence that has a similar affectation,if the subject property has adverse affectations. In direct comparison method, a minimum of three comparable sales is usually required to determine the market value of residential real estate.  Cost Method Cost method in property valuation is established by the understanding of method construction and property features related to the cost. In this method the value is estimated by adding the cost of the land to current cost of construction having in mind the the improvement on land and subsequently subtracting depreciation in all land improvement. Reproduction cost or replacement cost of same or similar materials or systems all include in construction costs. This works best for the assessment of new properties that are not often exchanged in the market. Note that, in the cost approach land is always a separate value. Summation method:The summation method in real estate valuation is a method usually used as a secondary or check method especially where there is lack of sales evidence or incoherence in the direct comparison method. It also comprises elements of comparison against any recent market activity. Summation, basically is the cost of construction, subtract by the depreciation and plus the land value. Construction cost of any residential real estate is determined by applying a rate per square meter multiple by the area of the house. The depreciation a property is determined by the age and condition of the house at the time of assessment. By rule of thumb, it is assumed that a property depreciate by 20% for the first year, 15% after first year for each year till 10 years after which the worth of the property will be 10% original cost. In the determination of land value, a vacant land sale or a knock down sale is find and then determine. If a proper calculation was done, the summation should fall between 5-10% approximately of the direct comparison method. You can determine the value of your property by yourselves. These can be done by using Net operating income approach and Gross income multiplier approach.1. NET OPERATING INCOME APPROACH.In net operating income approach, it showcase the gain that will be generated by the property after taking account of operating expenses before deducting taxes and interest payment. Total income obtained should be determined before deducting expenses. Before deducting expenses, the total income obtained from the investment must be determined. At this stage, a marketing research is needed because there is need to look at rental income from comparable property in the area. I this, the anticipated increment in rents are shows by the growth rate. Working cost are those bought by day to day activities such include insurance,maintenance fees, management expenses and utility expenses. Thus, net operating income approach are calculated asMarket value = NOI/r-g = NOI/RWhere:NOI = Net operating incomer= Required rate of return on real estate assetsg= Growth rate of NOIR= Capitalization (Cap) rate (r-g) 2. THE GROSS INCOME MULTIPLIER APPROACHIn this method, it is assumed that the gross income it generated is proportional to the price of property in the area. In calculating the market value of the residential real estate, gross income multiplier should be taking into account. It gives the accounts of data history and sales in the area. This can be given as :Market value = gross income * gross income multiplierWith all these method above, application of these method correctly can help an average person who have interest in the purchasing of residential real estate to accurately determine the values of the property and minimize the risk of falling to prey of selling agents. It is important to note that as a starter you should compare like with like. A beginner should also note that a subtle differences in a residential real estate can have a massive value disparities. For example in the case of a particular area which requires a minimum 600 square meters to build two homes on a parcel of land. But the available land is 599 square meters. In this case one square meter is not actually noticeable but one square meter is difference in getting two home in one parcel of land rather one.