Property Valuation Methods



 

Property valuation refers to the process of pricing a real estate property. It’s where the economic value of real estate investments is determined. The fair market value of real estate property is determined and the price at which a seller is willing to sell his/her property to an informed buyer is also established. Both parties should have relevant information and no one is pushed to sell or buy. Nonetheless, it’s important to note that the value of a property doesn’t always match its market price. For instance, in certain cases, a seller is troubled and must sell the property immediately even if the price is lower than its fair market value.

Property Valuation: The Importance

When it comes to real estate investment, property valuation is extremely important as it determines the amount of property taxes as well as property insurance to pay. Besides, mortgage lenders need to have a home appraisal before issuing a loan. This protects the potential buyer from spending too much money on a real estate property while also protecting the bank from funding a property that’s worth less than the total amount it invests in. Even more, home appraisals are required to cover legal matters such as lawsuits, divorce, and real estate settlement.

Accurate property valuation is often conducted by Certified Property Valuers Melbourne | No.1 Property Valuation Co. For a single home, the cost of an appraisal typically ranges between $300 and &400. But this value may vary depending on the size of your property.

The most common strategies for property valuation, include:

Cost Approach

In this approach, the value of a property is considered as the total cost of the land plus the overall cost of replacing the property minus the physical as well as functional depreciation.

Generally, the cost approach is well-suited for real estate properties which aren’t easily sold like hospitals, government buildings, and schools.

Income Approach

The income approach refers to a property valuation technique that’s particularly common commercial real estate as well as rental properties. Typically, the current value of a property is calculated based on the net income it yields divided by the rate of capitalization.

The appraiser starts by collecting income plus expense statements for the real estate property in question and for similar properties located in the same area so as to approximate the net operating income (NOI).

Sales Comparison Approach

This approach utilizes the market data of sale prices for estimating the value of a property. In this technique, property valuation is done by comparing a given property to other similar properties that have been recently sold. ‘Comparables’ must share common features with the subject property. These include physical aspects such as the location, number of rooms, age of the building, square footage, as well as the home’s condition.

Adjustments are often required to account for the differences since no two properties are exactly identical.

 

Conclusion

When it comes to property valuation, there are several methods that you may want to consider. These include the income approach, sales comparison approach, and cost approach. The choice you make depends on the size, location, and value of your real estate property.