What Should Be Included In A Property Valuation?

The details included in a property valuation are usually dependent on what sort of property is being evaluated. A commercial property’s valuation will focus on elements that show the property is appropriate for commercial functions while a residential property’s valuation will focus more on factors that indicate the property is suitable for comfortable habitation.

What happens if wrong details are included in a property valuation?

The contents of a property valuation needs to cover certain aspects, if not, wrong information will be provided to the party who made the request for a valuation. To avoid this is why it is strongly recommended that property valuations be done by only certified professionals. Any party who lacks the necessary expertise to provide an accurate property valuation can end up deliberately or accidentally delivering a misleading value estimate that can lead to a financial loss.

Consequences of a misleading property evaluation include;

  • Under-pricing a property for sale: One of the primary purposes of performing a property valuation is to receive an accurate estimate of the market value of a property so that the right price can be asked for it when the time comes to sell said property. If a property valuation is improperly done, the estimated market value of the property might be delivered as a low figure. This low estimate of the property’s value will cause the owner of the property to offer it to a buyer at a price far less than the property’s actual value, thus leading to a financial loss.
  • Overpricing a property for sale: A wrong property valuation can lead to the property owner being delivered an estimated value that is far higher than the property’s actual value. While the property owner might be initially happy to discover the property in question has the potential for a high asking price, a problem might arise when the time comes to actually sell. This is because a potential buyer will likely have done research and will thus have a ballpark idea of what the property should cost. If the property owner’s asking price far exceeds said ballpark idea, the potential buyer will likely lose interest and walk away. Simply put, a property that is wrongly overpriced due to faulty property valuation can lead to the property owner being delayed or unable to sell the property in question.
  • Being cheated out of profit: Figures delivered by a faulty property evaluation can be used by an unscrupulous agent or other party to cheat a property owner of his/her profit from a property sale. For example, an unaware property owner who has received a low estimate might fall victim to an agent who’ll sell the property at a higher price but deliver only the lowballed amount to the property owner.

What should a residential property and a commercial property valuation consist of?

In order to properly calculate the true value of a property, a property valuation ought to take into consideration certain important aspects of the property. Regardless if the property is a residential or a commercial one, the following details of the property will be considered by a valuation to accurately determine its value.

  • Property details: This will consider various aspects of the property including its size to determine its value.
  • Characteristics of the property: The valuation will look into if the property has been properly designed to suit the purpose for which it was built for. For example, a commercial building should be properly designed to provide a conducive environment that boosts productivity and facilitates commercial activity. A residential property’s design on the other hand should sufficiently provide a safe and comfortable environment for inhabitants.
  • Location: The location of a property, be it commercial or residential, is important because it will determine the functionality of that property. For example, a commercial property that is too far from its clients, or sources of materials, or is in a location where it cannot easily access services it needs to be productive will be poorly valued. But a factor that will always be considered when evaluating a commercial or residential property is safety of the location. A property in a safe location will always be favourably valuated.
  • Neighbourhood: Properties that are close by to the subject property will also be considered during valuing. This is done by considering the current estimated value of neighbouring properties and using that to determine the probable value of the subject property.
  • Facilities: The sort of facilities provided by a property is essential to a valuation. While the details considered might differ between commercial and residential buildings, the overall factors are still considered by the valuation, such as; amount of rooms and space available, availability of facilities like bathrooms within the property, availability of heating, and so on.
  • Building quality: The building structure and the grounds of the property being in good condition is essential in order to attain a favourable valuation. The condition of the building and any apparent faults will all be taken into consideration while determining the worth of a property. The quality of the property’s fixtures (especially plumbing, and electricity fixtures) will also be measured.

What can be accomplished with a properly done property valuation?

More often than not, property valuations are performed at the request of either the owner of a property, or a financial institution with a vested interest or potential vested interest in the property in question.

When a property valuation is concluded, the details of the exercise are usually presented via a formal report referred to as a Valuation Report. A valuation report details information concerning size of the property (both building and land), current condition of the property, details of the property and its owner, encumbrances that might be on the property, rates, sale history of the property, and value of neighbouring properties.

The information provided by a valuation report is exceedingly useful in accomplishing the following;

  • Securing loans
  • Refinancing a property
  • Calculating taxes such as capital gains tax, as well as personal tax.
  • Calculate the value of a property’s mortgage.
  • Calculate estate settlements as well as divorce settlements.
  • Calculate the right amount for insurance coverage

Help negotiate a better property price when trying to either buy or sell real estate.

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Published on 1st June 2017

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