When it comes to establishing the value of residential investment properties, there are three possible approaches that are used.
Lenders will use the approach that fits their underwriting standards:
1. The Sales Comparison
This approach determines the value based on comparable
properties in the same area and the price they sold for in the past three
2. The Cost Approach
This approach determines how much it would cost to replace
the property if it had to be rebuilt from scratch. This is sometimes referred
to as the "reproduction cost” or "replacement cost”. This method can be varied.
Dependant on whether or not a property is rebuilt to the same specifications.
3. The Income Approach
This approach incorporates income derived from the property
(or potential income) as a method to identify the market value of the property.
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Tuesday, 3 December 2019