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Index Method

DEFINITION

Appraisal method used to estimate the value of real estate by multiplying the original cost of the property by the percentage factor when taking into consideration the current cost to develop a similar building.

EXPLANATION

The least common of all the appraisal methods used to calculate the value of property is the index method. This involves estimating the costs of the building and multiplying it by the percentage factor by which the property may have decreased.

This method is the least reliable and most uncommon form of the appraisal methods because the costs of labor and materials can be extremely variable, therefore creating much difficulty in generating a specific price. With so much room for error, it is no surprise why this method is the most unreliable and least often employed.

Why the Index Method is the Least Commonly Used

The index method relies on using the average cost of goods, services, and construction in determining the value of property. Because the value of goods and services changes often, it is difficult to gauge the true value of a property exclusively using the cost of goods and services to create a similar property. Instead of using the index method, most appraisers or BPO’s utilize the income capitilization approach or the comparable market approach to estimate property value.

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