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Buying land needs to be thought out.

This is the second of two articles highlighting the approaches that an appraiser uses when appraising a piece of property. We find many people have questions about how the appraisal is completed and we hope these articles will provide insight into the process.

The first article outlined the three approaches completed within the appraisal. Now you may be wondering, how the appraiser reconciled these approaches to determine the market value of the property.

The appraiser will have already analyzed the subject property and considered the purpose of the appraisal to determine which approaches to complete.  This may or may not include all three approaches, depending on which the appraiser has determined to be appropriate.

An appraiser’s assignment (in most cases) is to determine market value of a property Market value is defined as “The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale…” (The Appraisal of Rural Property, 2nd Edition).

All three approaches utilize market-derived data to analyze the property.  The appraiser will select which approach may be most appropriate, reliable, and applicable to the property.  Property use, the buyer’s motivation for purchasing a property, and how well a property suits a buyer’s purpose influence which approaches may be best applicable to the appraisal assignment.  The quality of the market information may also influence the reliability of the reconciliation and market value conclusion from each approach used in the appraisal.

The Cost Approach is typically weighted and applied on improved properties where there is good cost information and total depreciation can be supported.  The land value estimate may be similar to that used in the Sales Comparison Approach.

The Income Approach may be weighted for properties that have reliable or predictable cash flow and income.  This approach is not typically used for primary residences on lots or small acreage or for recreational properties.

The Sales Comparison Approach might be weighted for improved or unimproved properties where comparable sales provide for direct comparisons and market adjustments for the factors that influence value for the property.  A final value estimate is reconciled from one or all approaches used and considers the availability, comparability, and analysis of the market data and how it is relevant to the property being appraised.

If you are interested in learning more about purchasing Missouri land or rural property, complete this form to contact one of our loan officers.

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