# How to Calculate the Appraised Value of a Home

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Buying a home is one of the biggest commitments that many people will ever make. Knowing the value of the home can help you put in an offer that will be accepted, and it can help you find the right mortgage. Understanding how to calculate the appraised value and the appraisal formulas that professionals use can help set you up for success.

## Appraised Value vs. Market Value

When most people talk about their home’s value, what they mean is the market value. This number is a reflection of what buyers are generally willing to pay, but this is not the number lenders will use to determine the mortgage. The appraised value is what lenders will use to approve or decline loans.

When determining market value, comparable homes in the area are the most important factor, not the listed price of the property. The market value can fluctuate based on overall economic factors and the popularity of a particular area.

The appraised value takes many more factors into account, things that are not likely to change like the size and location of the home. Some of the factors that appraisers take into account include:

• Comparable properties in the area that have recently sold
• Age and general condition of the home
• Neighborhood and location
• Size and feature of the home
• Property feature and size
• Major improvements
• Features like pools, hardwood flooring and high-end finishes

The appraised value is used to determine the assessed value for tax purposes, which is usually a percentage of the appraised value of the home. What percentage of the appraised value is assessed value? This percentage varies depending on the state and locality where the home is located. For instance, it is 19 percent in St. Louis, MO, and 7.96 percent in Douglas County, CO. You can call the county tax officials to find out what it is in your area.

## Estimate Home's Appraised Value

Do appraisers use a formula? Appraisers use three different methods for determining the appraised value of a home.

### Cost Approach

When using the cost approach, the appraiser assigns an initial value to the property based on comparable homes and land in the area. The appraiser then consults data published by local builders and publications like Marshall & Swift to find the average replacement cost per square foot of the home. The appraiser then depreciates the property based on the age and life expectancy of the home.

### Sales Comparison Analysis

The sales comparison method uses four similar properties located within a certain distance from the property in question. They use things like the average time on the market, whether the home is habitable, sales and financing concessions and other factors. The appraiser will then make adjustments to the figures based on the actual property.

### Income Method

The income method takes into account the revenue that can be generated by the property. The formula is:

Value = rent income x gross rent multiplier (GRM)

The GRM is found by comparing similar rental properties in the area.

One thing to keep in mind is that the market value and appraised value should be close. If they are not, then it is time to start doing some investigating as to why. There is no official appraisal formula and making a fair appraisal depends on knowledge and experience in the real estate market. You might be able to use these factors to determine the value of your property, but the best way to find out the value of your home is to hire a professional.