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It is an openly acknowledged fact that many less knowledgeable investors pay more than the market value for the property they buy. This is precisely the chief reason why so many newcomers to real estate investment do not stay in the business to make profits. Most beginners in real estate investment do not acquaint themselves with prevailing market conditions and also do not have the type of capital to succeed in real estate business.

Ignorantly overpaying for their first investment property turns out to be a very costly mistake and thereafter the starters find it tough to recover and that leads to the end of their foray into real estate. That's why it is imperative that you learn how to accurately estimate the current market value of potential investment properties! It is undoubtedly the key aspect to the entire real estate investment business!

It is rather unfortunate is no Kelly Blue Book available for real estate investors to readily know used property values. You have no other option than to learn for yourself how to estimate the current market value of potential investment properties. But in the present age of computers and the Internet, it may not be difficult to arrive at a rough estimate of a property's current market value. This is especially true for real estate investors located in counties where all property ownership, sale and tax assessment records are available online.

First of all, let us understand what is meant by current market value. The Appraisal Foundation's Uniform Standards of Professional Appraisal Practice, defines market value as: "The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the sale price isn't affected by undue stimulus.” It is also equally important to understand the difference between assessed value and appraised value.

Tax Assessed Value: Tax-assessed value is the value determined by the local taxing authority for a piece of land. In most well-developed cities, owner-occupied single-family houses are generally assessed at around seventy percent of their fair market value.

Appraised Value: Appraised value is the value estimate given to a property by a licensed property appraiser using the standard appraisal methods. The appraisal method to accurately estimate the fair market value for an owner-occupied single-family house is based on the recent sale price of comparable properties within the same area.

There three most commonly accepted methods used by property appraisers to estimate property values are the: Comparison Sales Method, Income Method and Replacement Cost Method. The Comparison Sales Method is calculated on the basis on the recent sale prices of properties that are within the same area comparable in size, amenities and features. The Income Method is used to estimate the value of an income producing property based on the net income the property produces. The Replacement Cost Method is based on what it would cost to replace the improvements on property using similar construction materials and construction methods.

There is an accepted scientific method to estimate a property's current market value. First of all, log onto your county's property appraiser or assessor's Web site to obtain the tax assessed value of the property under consideration. Search to ferret out information about your county's property tax rolls for recent sales of three to five properties in your area that are comparable in size, amenities and features. Study carefully the income and expenses that are listed on the income and expense statement of the property under consideration. Analyze the property's income and expenses for the past twelve months to estimate its net operating income potential. Estimate the property's value by multiplying its net operating income by the capitalization rate you came up with for the property. Calculate the cost of replacing the improvements on the property using identical building materials and style of construction.

Labels: How to Accurately Estimate a Property's Current Market Value