How Do Appraisers Determine the Value of a Home?

A home appraiser provides an unbiased determination of the value of your home. The appraiser needs to know certain things about the property in question, such as the number of bedrooms and bathrooms, the square footage, the overall condition of the home, the layout of the property and the features and defects of the home. The appraiser will determine the value of your home by using as many as three different approaches: the cost approach, the sales-comparison approach and the income approach.

The cost approach takes into consideration what it would cost to replace the home in its current location. Appraisers first determine the value of the lot the property stands on and then consults local building and labor costs to come to a per-square-foot value. This is done in part by using such publications as Marshall & Swift, an industry reference for building-cost data. The appraiser then depreciates the value of the existing home, considering the age and condition of the house and the appraiser's own experiential knowledge.

The appraiser compares the property to the three most recently sold neighboring homes, or more if the property being sold is “unusual.” The appraiser should be familiar with the neighboring homes, so he should know if the home being appraised has amenities the neighboring homes don't have and will consider such things in the appraisal. This method is considered the best indicator of value.

Also known as income capitalization approach, this method is used primarily in the case of rental properties and communities. The appraiser estimates what an investor would pay based on what income she could expect to make from the property.