GENERAL

 A Complete Guide to Real Estate Valuation

If you are planning to buy or sell a property, you would want to know its fair price. If you don’t know it, you may make mistakes or even be taken advantage of. You must do your homework and know everything you need to know to make a well-informed decision in real estate investment. 

Different factors are taken into account when calculating the price of a property. The size, location, quality, age, market value etc., are considered. Different methods are also used to calculate the price depending on whether you plan to buy, sell, rent or know the value for insurance purposes. 

We have compiled a short guide to help you understand real estate valuation and its must-know fundamentals. Read on.

What is a Property Valuation?

Property valuation is simply the value of a property that a real estate investor comes up with after carefully calculating different aspects. It is conducted by the data on the property and the current market. Real estate brokers, licensed business valuation experts, and firms calculate a property valuation using different methods. 

Financial Data You Need Before Property Valuation

You need to know several data points before you get a property valuation. They include

  • Mortgage payment which may or may not include taxes and insurance
  • Down Payment Amount 
  • Rental income 
  • Price-to-income ratio 
  • Gross rental yield 
  • Capitalization rate
  • Cash flow 

Property Value Is Also Affected by…

Several factors affect the value of a real estate property. They include: 

  • The size and floor plan of the property is the most common measure to value a property. The value changes with the size and the floor plan. 
  • Work done on the property increases its value at a fraction of the money spent on it. While it can be a loss for the seller, it is a gain for the buyer. 
  • What condition the property is in also affects the value. The more dilapidated a property, the lower the value 
  • An aged property will also have a lower value than a new one as a new one requires lower repairs. 
  • Supply & demand scales also determine value. If more demand and lower supply, the value will go up.
  • The neighbourhood of the property also affects the value. The rate of criminal activity and access to important locations, amenities etc., determine the value. 
  • The general location of the property, the climate, the job market, and the population affect the value of a property. 

Different Valuation Methods  Used in Real Estate Valuation

Here are some of the most popular approaches to real estate valuation. 

  • Comparative Method/ Sales Comparison Approach is done by comparing the prices of various properties that are comparable to the given property, this method determines the value of the property
  • Development Method/ Residual Land Value Method is used if the land is used for development; the valuation method examines the potential for profit
  • Guidance Value Method/Ready Reckoner Rate. The agencies in charge of regulating property transfers employ this technique. It is employed to estimate the levying of stamp duty and registration fees at the time of the transaction.
  • Land & Building Method This approach is used to clearly understand the valuation of the building and the land. The assessment of the land’s value comes first. The building’s value is then determined. After that, it is added to generate the final value
  • The Belting Method is conducted by dividing the land into three belts. The value of the land closest is the highest, and the one farthest from the road is the lowest 

How to Calculate Real Estate Value? 

 An investment in real estate is made on the worth of the property and the possible returns it will give. The idea behind real estate value is quite simple. It is calculated based on the income generated from the property, location, age, and many other factors. 

Simply put, it can be calculated by a formula like 

“Market Value = Price x Estimated Income / # of Units in Building”

Here only the price of the property, the estimated income it can generate and the units in the building are considered. 

As simple as this may seem, it can be complicated for a layperson to crunch the numbers and conclude. It takes a keen eye and presence in the market to know what is what. That is where the expertise of a property valuation expert comes into play.

Hiring a Property Valuation Expert 

 A property valuation expert will know the different aspects that determine the value of a property, will be able to use the correct method to find the most accurate value for the property in question, know the market trends, and be able to get you the best value possible. 

To find the best real estate valuation expert, we recommend RNC. RNC is a reputed valuation firm that has some of the best real estate valuation experts under it. Simply reach out to us at RNC. Our team with be delighted to help you. 

TIME BUSINESS NEWS