What Are The Different Types of Property Valuation Methods?

What is the Comparison method of property valuation?

This method of property valuation is used by most valuers for the most common types of properties like houses, offices, and shops. It is very easy to use for properties where there is good evidence of previous sales. An estimated value of the property is produced after the process. In an ideal situation, there should be different comparable properties available in a stable market for sale or letting. Different comparable factors are then selected and analysed, making adjustments in their differences in order to come up with the value of the initial property.

How do I know if the valuer has chosen the best method of property valuation for me?

A professional property valuer who is adequately qualified for the job will always use the best method pf property valuation as required by each property. When choosing a valuer, look out for one that has completed the relevant tertiary level qualifications, and has been licenced by the right state body to practice in the position of a Certified Practicing Valuer (CPV) or a Residential Property Valuer (RPV). Only valuation reports such qualified valuers are recognised by the banks, courts of law and other relevant professionals.

How accurate is the residual method for property valuation?

Residual method of property valuation is used to estimate the value of property with development potential or a vacant land undergoing some changes to create more profit. Calculating property value for a property still under development must take into account the gross development value minus development costs (including developer’s profit). The residual amount then becomes the capital which can be spent on the property by the developer. This method of property valuation is well known to be inaccurate because of how challenging it is to keep track of the amount of inputs and costs as they are constantly changing.

 

What type of property valuation do I need when I’m selling a property?

A property valuation can provide you with an independent assessment of your property’s current value before you sell. The comparison method is also a good method for valuing the property that is about to be placed on the market, except there are certain factors necessitating the use of other methods such as profits or contractor’s method. When selling a property, a valuation report should be obtained and provided as an instrument in the negotiation process to ensure that you do not sell below the worth of your property.

What type of property valuation do I need when I’m buying a property?

Having property valuation carried out on a property before you buy can offer you an independent opinion of its value, helping you to negotiate the right price and save money. Comparison valuation is the common type of valuation used in such situations. Valuers will check the title of the property, and other factors, comparing them with other properties in and around the same location. Then they will provide you with a detailed report of risk analysis to highlight any potential opportunities or threats.

How is the profits method used in property valuation?

This method estimates the gross profits of a business, deducting all work expense minus rental payments to give the divisible balance (i.e. the amount of capital to be divided between the tenant and the landlord). Profits method is applied on a business property having the characteristic of a monopoly, showing results in comparable variables; or when there are no comparable rental or sale transactions available. It is generally used for pubs, nursing homes and hotels.

What are the reasons why a valuer would choose to use contractor’s method to value my property?

If a property cannot be valuated using the other forms of property valuation, i.e. comparative, investments or profits methods, then contractor’s method will usually be used to determine the value of a property. This occurs especially when there are no market transactions for the property because of the specialist nature of the property. The process involves assessing all the costs associated with an equivalent property, usually a modern one, and adjusting them to provide a reflection of the age of the property under valuation. Contractor’s method is quite unreliable and is usually referred to as a last resort. This is because the market value of such a property is not determined by its cost of production, but by economic forces of demand and supply.

How is investment property valuation method used to find out the current market value of my property?

The investment method of property valuation is useful for comparing the returns on a property to the returns on other investments like bonds, stocks or equity. Yield from your property is used to calculate for investment valuation. A greater yield means a higher return on your investment. Investment property valuation is highly useful for both commercial and residential property producing cash flows through property letting. Property valuation using investment method can be determined using a simple model. This is possible when the market-determined equivalent yield, the passing income and the current Estimated Rental Value (ERV) are known. Investment property valuation shares the same concept as comparison method, since the variables used are determined according to the market.

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Published on 1st June 2017

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