How to Estimate the Value of Real Estate

General

Whether you are in the real estate sector or you intend to buy or sell a home, one of the most important skills that you can have is the ability to estimate the value of the property. Other reason why you may need real estate valuation is for the purposes of sales listing, financing, investment analysis, taxation and property insurance. Unfortunately, there are many people who determine the value of a property through the asking price. One of the best ways of getting the real value of a property is by getting in touch with direct valuation solutions. There are also a few things that you need to know on valuing your property.

Basic concept of valuing a property

The value of a property can be defined can be technically defined as the current worth of the future benefits that comes from owning the property. Property is different from other consumer goods in that its benefits can be realized over a long period of time. This means that the estimated value of the property should consider the social as well as economic trends. This is on top of the government’s regulation or control on top of the environmental conditions that can influence 4 key elements of value. These are:

  • This refers to the need or desire of owning property and should be supported by the financial means to satisfy the desire.
  • This refers to the existence of properties that are competing against one another.
  • This refers to the ability to satisfy the future needs and desires of the owners.
  • This refers to how easy it is to transfer ownership rights.

Value vs. price and cost

Unlike what many people think, price and value are two different things. Cost is the actual amount used on things like materials and labor. Price is the amount that you will get for the property. Even though the value is affected by price and cost, these are not the only determinant of value. For instance, you might find that a house is being sold at $200,000. However, its value may be slightly lower or higher than that. In case a new owner comes and find a major flaw in the house such a big crack on the wall, this could result in a lower value of the property.

Market value

You may decide to have the property appraised on its value. This is to get the actual value of the property as at a particular date. The appraisal report can be used by government agencies, businesses, investors, individuals and even mortgage companies to make decisions on the transactions of the real estate. The price at which the property may be sold at may not actually represent its actual value.

Gross income multiplier

This is a valuation method that is commonly used to appraise properties that aren’t income properties but can be rented out. In this method, the sales price of a property is compared to the rental income that is expected. If you are dealing with a residential property, this is the right valuation method. On the other hand, if you want to get the value of industrial and commercial properties, the gross annual income should be used.  To get the gross income multiplier, you should divide the sales price with the rental income.

Recent rental and sales data of at least 3 similar properties can be used to get the right GIM. This should then be multiplied with the fair market rental of a property in order to figure out the market value. To get the most accurate valuation, you should contact direct valuation solutions.