Does A Valuation Of Property Include Land?

The valuation of a property takes into consideration the land, what’s on the land, and what’s beneath the land in order to determine an accurate estimate of a property’s current value. Any property valuator who fails to take into consideration all necessary elements concerning a property stands the risk of providing a faulty valuation.

Why is a property valuation necessary?

Getting a property valuation will be very useful in any of the following scenarios;

  • Calculating taxes such as capital gains tax, as well as personal tax.
  • Determining the value of a property’s mortgage.
  • Trying to secure a loan
  • Seeking refinancing for a property
  • Determining divorce settlements as well as estate settlements.
  • Calculating the right amount for insurance coverage.
  • Negotiating a better price on a property when trying to either sell or buy real estate.

What is necessary for an accurate property valuation?

An accurate property valuation is dependent on the data received concerning the subject property. For accurate data to be had, it’s advised a property valuator does the following;

  • Visit the physical property and inspect every aspect of it from top to bottom, both land and structures. Failing to check any pertinent aspect of a property can lead to a flawed valuation.
  • The valuator must ask the right questions about the property and get the relevant answers necessary for an accurate valuation.
  • The valuator must take note of any improvement that has been made to the property and any further renovations that might be needed. Such as if the roof needs fixing, or if the heating system will need replacing, or if the plumbing or wiring has any faults, etc.
  • The cost of the improvements that have been carried out on the property should be discovered by the valuator.
  • The valuator should endeavour to find out how much the property was purchased by the current owner and when it was purchased. This information is invaluable in determining the current market value of the subject property which might have reduced or increased since the last time it was sold. This information can be got either from the property owner or from government records.
  • The valuator should also be sure to discover the circumstances under which ownership of the property came to the current owner. Information such as if the property was inherited, bought at auction, or any other relevant information are all pertinent to the valuation process.
  • It is not only the subject property that should be investigated but also neighbouring properties. The quality of neighbouring properties as well as an estimate of their current value should be had in order to effectively compare them to that of the subject property. The valuator should also discover what sort of locality the property is in, such as if it is in a high brow area, an exclusive neighbourhood, what services are available, and similar information.
  • Information concerning if the property has been previously valuated should be discovered. The reason for the previous valuation as well as its result can contribute to the valuation process. That is, comparable evidence and the reasoning behind the figure provided by the previous valuation will be useful to the current valuator.
  • Whether there are any current legal encumbrances on the property is also important information. Such as if the property is under an injunction.
  • If offers have already been made to purchase the subject property, the amount being offered will be useful in calculating an accurate value of the subject property.

What methods are used for valuating a property?

The method applied in valuating a property is dependent on the sort of property in question. That is, there are methods of property evaluation that are better suited for either a residential or a commercial property. Below are 5 methods that can be used to valuate specific types of properties.

  • Comparative method: This is performed by comparing the subject property with neighbouring properties. The best results are achieved from this method if the properties being compared share similar attributes. This method is better suited for valuating residential properties.
  • Investment method: This method is often used when evaluating a commercial property. It is carried out by using a discounted cash flow equation to determine the value of a property through its ability to produce income or earnings.
  • Residual method: With the help of this method, a property valuator will be able to provide a property developer an accurate estimate of the value of a developing site. It operates by calculating the final gross development value for a land and the cost of developing that land.
  • Profits method: It is often applied in evaluating a business premises, such as a restaurant, mall, or hotel. It is calculated by taking into consideration a three year average of the business’ operating income. These figures will be derived from the loss and profit, or income statement of the business.
  • Replacement cost method: A method that’s mostly used in valuating properties with little comparable data. For example; schools, churches, etc. It operates by taking into consideration an estimate of the replacement value of a property. Cost of the land and the cost to rebuild the building structure are often the basis of the valuation.

Upon completion of a valuation using any of the above methods, the discoveries uncovered by the exercise will be summarised in a Valuation Report that will be delivered to whoever commissioned the property valuation.

What factors affect the value of my property?

The following factors are significant to calculating a property’s value;

  • Age of the building structure on the property
  • Size of both the land and the building structure.
  • Location of the property
  • Presence of damage to the property.
  • Structural improvements made to the building.
  • Room layout within the building.
  • The state of the electrical wiring of the building
  • The state of the property’s plumbing.
  • The amount of storage space provided within the property.

All these elements will come together and be evaluated to determine the market value of the property in question.

Related Questions

Published on 1st June 2017

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