Real estate property is an asset since it grows in value over time. This factor alone makes real estate one of the most sought-after commodities today. Real estate valuation refers to evaluating the approximate value of a property in the market at a particular time. This valuation helps sellers and other stakeholders decide how much real estate property will sell for a period.
The real estate valuation of a property is unique to the type or size of the property since several factors are referred to. This article from the property valuers at https://www.sydneypropertyvaluation.com.au/ is prepared to help you broaden your knowledge of real estate valuation.
How Valuation Works
A property’s real value is realized years after acquiring property as it grows in value. The factors that will affect the cost of the property should also be considered. These are factors used when finding the value of the property. The environmental, political, and social factors will affect how people perceive the value of a property.
What is Market Value
This is a general opinion of the market on the value of a property usually estimated by comparing what other products of the same type are selling for. While most prices are based on the market value, the market price of a property cannot necessarily dictate the market value.
Real Estate Valuation Versus Real Estate Appraisal
Real estate valuation is where a qualified licensed valuer provides a legally enforceable valuation report that is detailed and unbiased. On the other hand, a real estate appraisal is completed by a realtor or mortgage broker at no fee, and it is not legally enforceable.
Methods of Valuation
Three main methods are used in the valuation of a property, these include;
The sales comparison approach – This method of property valuation depends on the market value of the area around the property in question. A valuer looks at similar properties in the neighborhood that have sold over a period. The valuer compares the size of the property, the number of rooms, amenities, and age of the property with properties sold recently. A competitive price of the property is then estimated for the property to sell.
The cost approach refers to the literal estimation of how much the property in question can cost to construct from scratch. This method considers the cost of material, labor, and other costs of getting a similar structure from the ground up. The depreciation cost of the property is decided and deducted from the total. It is useful in cases where the property to be sold cannot be compared to any other in the area. This method will help you complete the valuation of custom buildings like schools, churches, and theaters, among other property types.
The income capitalization approach – is used for property that generates income for the owner. These include residential, commercial, and industrial properties for rent. The rent income of these properties is decided by considering the factors affecting the property location.
Importance of Valuation
Valuation is vital for several reasons for a property owner and other parties involved in the transfer of ownership of property. These reasons include;
Selling or Buying of property – When you decide to sell the property, It will require you to undertake a valuation to understand the property’s approximate value. This helps in competitive pricing of the property while allowing the house to sell quickly and easily. On the other hand, buyers would also benefit from a valuation of a property they intend to buy and make the necessary decisions and make an offer.
Mortgage a property – Before getting a loan, you will need a valuation to ascertain how much your property is worth and help the lender determine the amount is worth the risk.
To rent out the property – Renting out a property requires the owner to set a price that is both realistic and attractive to tenants. A valuer would help prepare a detailed valuation to base the most competitive rent amount every period. The law requires up to 10 percent of the total cost of the property.
Mandatory acquisition – A company can declare bankruptcy forcing lenders to auction its property. It would require a valuer to ascertain the value of the property.
Taxation – The government can impose taxes on a property requiring the property’s value to be known. This is where property valuation helps to establish the base value of the whole property before it is taxed.
Doing a valuation for your property is important in helping you gauge how much your property is worth in the market. You can get this service for free. However, if you want a detailed report, having a professional third-party do it is your best bet.