Many beginner real estate investors wonder whether they should get a real estate market analysis or a home appraisal. This question can pop up whether you are selling an investment property or buying an investment property.
That’s why it’s important to know the major differences between these two property valuation methods and when you need them exactly as a real estate investor.
What is a Real Estate Market Analysis?
A real estate market analysis consists of trying to find the market value of an investment property. This is done by first performing investment property analysis and finding out all of the key features of the investment property in question. These are the features that may affect the value: real estate market, neighborhood, street, size, condition, age, etc.
Next, a real estate investor must find real estate comps. This is easily done with a rental property calculator. This real estate investment tool will return real estate comps for every investment property listed rather than forcing a real estate investor to search investment property listings.
The final step is to arrange the real estate comps according to their features and prices and create a price range. Compare your investment property and find its value within the price range.
Learn More: Beginner’s Guide to Comparative Market Analysis
What is a Home Appraisal?
A home appraisal is another common form of the property valuation methods. There are three ways to complete a home appraisal:
- Market Data Approach/ Direct Sales Comparison Approach
- Cost Approach
- Income Approach
The most commonly used one is the market data approach which is essentially the same as the real estate market analysis process described above. So what are the major differences then?
Real Estate Market Analysis vs. Appraisal: How are They Different?
Despite the similarities above and the fact that they are both property valuation methods, there are blaring differences a real estate investor must be aware of:
Who performs it? A real estate market analysis can be performed by a real estate investor or an agent or broker. A home appraisal, on the other hand, must be carried out by a licensed professional appraiser.
When does a real estate investor need it? Real estate market analysis is always needed, whether you are selling or buying an investment property. However, it is never a requirement, unlike a home appraisal. A home appraisal is actually required by mortgage lenders anytime a loan is involved in real estate investing.
How much does it cost? While a real estate market analysis comes at no cost, a home appraisal will cost a few hundred dollars.
Which is more accurate? Because home appraisers have no stake in the selling or buying of an investment property, a home appraisal is considered to be the more accurate one. With real estate agents, their commission comes from the real estate transaction so they cannot be considered impartial, even if the results are technically accurate.
To learn more about real estate market analysis vs. appraisal, read: Real Estate Market Analysis vs. Home Appraisal: What’s the Difference?