When it comes to valuing property, the most accurate property price valuation is one that takes into consideration ‘why’ you need a valuation carried out in the first place. The 4 most common reasons for a property valuation are as follows:
- You are seeking to buy or sell a home.
- You are buying or selling an investment property.
- You need to insure a property.
- Your lender needs to value a property as an asset that will secure your home loan.
Once the ‘why’ behind the property price valuation is understood, you then need to select the right approach for valuing the property. The 3 most common approaches used today are The Cost Approach, The Sales Comparison Approach and The Income Approach. Let’s look at each of these approaches so we can understand how they work.
The Cost Approach
This approach takes the land value of a property into consideration and then looks at the cost of replacing any structures found on the land. This is a commonly used approach for newer properties as they are easier to value using this method, whereas older properties can be more difficult to value using the cost approach as they are often more costly to replicate. The cost approach to property valuation is typically used by lenders, insurance companies and depreciation experts.
The Sales Comparison Approach
This approach is based on the buyer paying no more than the value of a comparable property that is currently on the market or has recently sold. Therefore, the property’s value is determined by comparing recent sales data and finding a property with similar features and attributes in the same location. Typically real estate agents will use this method to price a property for sale. It is also recommended that you conduct your own research before you consider buying or selling a home or investment property using this method.
To conduct your own market research visit websites such as realestate.com.au and domain.com.au. Look at properties that are on the market and those that have sold which are situated in the same area as the one you wish to value. When comparing these properties to the one you are valuing look at the following aspects:
- Total square metres of the building/s on the property.
- Quality of the building, and the fixtures and fittings inside the building.
- Age of fixtures and fittings.
- The year the buildings were constructed.
- Property location. Is it near a park, water or facilities?
- Number of bedrooms and bathrooms.
- Extras the property has such as a swimming pool, outdoor entertainment area and gym.
- New additions or renovations, the year these were carried out.
- Total block size.
The Income Approach
This approach considers the upper and lower price per square foot of a property and how much this can generate in terms of a return on investment. This approach is typically used for commercial and investment property, and uses mathematical equations to calculate a property’s value based on the estimated rental return.
Do you want to know more about property valuation? If you said YES, then contact eChoice today to find out more
Written by eChoice