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A Few Techniques Used By The Valuers To Evaluate Your Property

by Marquette Turner Luxury Homes

in Features, Investing in Property, Real Estate Radar, Variety

Are you looking forward to evaluating your property? Well, then you must have searched for different valuers and valuation techniques. Yet, if you don’t have a finance background, the appraisal methods may seem feverish to you. This is why I’m writing about the different methods any valuation personnel uses. In this article, I will explain the different methods adopted to gauge a property.

But before we begin, you need to have a basic understanding of the real estate business and how the finances work out. So, let us have a look at the basic terms and factors responsible for weighing a property.

Real estate valuation – an overview

Any property is classified into two categories. One is residential, and the other is commercial. It doesn’t matter if you have an empty plot available or an established building. The valuers use the local business Valuations VIC to categorize them as residential or commercial. The distinguishing factor is the square footage area and the locality.

Usually, a residential plot has a smaller area as compared to commercial space. If the land is registered for a residential project, the valuation will be different. Hence, you now understand the difference between residential property and commercial property.

Now, the valuation of the plot is higher if there is already a standing building. Moreover, the worth increases with extra amenities like furnishings, locality, convenience, and other sustaining factors. So, you now understand the basics of property valuation. Now, let us look at the techniques an examiner may adopt.

Photo by fran hogan on Unsplash

Property evaluation techniques and methods

In general, there are five main methods. Each of the methods can be applied to both residential and commercial properties. But, the coefficients of the factors will vary depending upon the following parameters:

  • Square footage area
  • Distance from the major metropolitan city
  • Location of the property – urban, suburb, or rural
  • Convenience of commute
  • Area amenities like grocery shops, malls, movie theatres, etc., and so on.

Now you must know that the worth of a property is not exactly the price. The price can be significantly higher or lower than the proposed value. Let us jump into the five techniques for valuation.

Comparison method

The comparison method is the most preferred by examiners to value the common properties like houses, shops, and offices. The valuer considers the market to be stable for a period and selects comparable factors. The valuer will then analyze the comparable factors to determine the rental value of the property. The value is the estimated market value, and it will be printed on a valid document. Thus, you can list your property at a higher or lower price depending upon the market situation. 

The profits technique

It is a part of business property evaluation. This approach is used when there is no comparable sales transaction available. Since there are no valid listings, the valuer switches to estimating the business’ gross profits, you can notice this style when the valuer is assessing properties or pubs, nursing homes, hotels, etc. It excludes the working expenses and overheads from the gross incomes and estimates the profits. The tenants and the landlord share the amount of capital in this scenario.

The residual routine

This assessment technique is widely accepted for vacant lands with no standing building or complex. It looks upon the development potential of the land. So, how is it calculated? Well, based on the area of location, the valuer finds the development value. Then, he will deduct the cost of development. This will provide the assessor with development profit. This is known as the residual routine. So, if you are looking to find the value of your empty plot, you know which technique to use?

The contractor’s method

It is also called the cost method of valuation. This method is used when no other methods seem dependable to get the right estimate. You must know that the application of this assessment is based on the situation. The property needs to have a specialist nature, and there should be no records of market transactions in the past. It examines the cost of providing modern equivalent property. But this is not a reliable technique as the market value depends on supply and demand.

The investment reasoning

The most pragmatic approach to determine the market value of a property is the investment technique. It takes the variables determining the property’s future income generation and the return of capital cost. This is then discounted to give the net present worth of the property.

So, these are the five major valuation techniques that you must know. So, whenever you are trying to list your property in the future or even purchase one, you must check the valuation techniques. This will give you a better idea of the reliability of the valuation.

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