Property Valuation: How To Determine The Value Of Your House

People invest in real estate because it is reliable and holds significant value. Owning a house is a manifestation of years of toil and effort. Knowing how much value it will fetch in the market is essential if you plan to buy, sell, rent, or lease a home. This is where the valuation of a house or property comes into play. It is a quantitative method of gauging the market value of real estate in different ways.

Property valuation is a vital part of real estate transactions and is used for the following reasons:

• For loan approval
• Buying or selling property
• Catering for adequate insurance coverage
• Future property development by government or private organizations
• Renewing your mortgage
• Tax assessment of property
• Resolving legal disputes
• To settle insurance claims

Therefore, a thorough valuation process serves personal, financial, and legal interests.

Who Needs Home Valuation Services?

Everyone wants to get the most out of investing in their property. Doing so requires good research and analysis of current market conditions. Many people and organisations can benefit from housing valuation services. These include homeowners looking to sell or refinance their homes, prospective buyers searching for a fair price, and realtors listing market prices.

Additionally, lending institutions and mortgage companies need this information to determine the value of collateral. Insurance providers use this value to set premium rates and provide proper coverage. Government agencies use valuation data to get a realistic idea of property rates before carrying out public infrastructure projects or solving legal disputes.

How To Calculate Property Value?

The method you choose for property valuation depends on the kind of property and the end goal of doing so. Are you looking to buy, stay, rent, or lease out the property? Is it a residential or commercial space?

Valuers use any single or a combination of different valuation methods to get the best possible estimate.

Read This Blog Also: Should You Purchase or Lease a Commercial Property?

Here are some methods used in the standard or traditional valuation process:

Comparable Method

One of the most reliable cost valuation methods is when a valuer compares properties with similar characteristics and locations to reach a final price estimate. The size, structure, location, accessibility to amenities, etc., and current market trends are factored into this method.

Investment/Income Method

It is best for commercial real estate like malls and office spaces. Here, the property is valued based on its ability to generate income in the future. For this, the appraiser considers the property's rental income and operating expenses to get an estimate.

Profit Method

It involves studying the average income of businesses like cinemas, restaurants, leisure centres, etc. This approach focuses on the profit generated rather than the net operating income.

Development Method

Also known as the residual method, this valuation is beneficial for vacant land or properties with the potential for future development. Usually, there needs to be more data available to use as a reference. The appraiser will calculate a gross development value (GDV) and subtract the direct and indirect development costs and profit to arrive at the final price.

Contractor's Method/Cost Method

Be it brand new, specialised, or unique properties, this method is a safe way to determine their value. As there isn't much data to compare the property against, the valuer will calculate how much it would cost to replace this property with another one.

Multiple Regression and Stepwise Regression Methods

Both approaches study factors that affect home valuation and help experts prioritise them while pricing properties.

Additionally, advanced approaches such as artificial neural networks (ANNs), hedonic pricing models, spatial analysis methods, etc. are valuable aids in enhancing real estate valuation accuracy.

What Is The Process Of Property Valuation?

An estimation of the value of your house usually involves the following steps:

• Enlist the services of a certified appraiser or valuer to carry out the valuation process.
• Share the essential documents relevant to the property in question. This includes the title deed, sales contract, architectural plan, permits, tax receipt, etc. The valuer may also collect data from public records and other sources to get a better estimate.
• The valuer thoroughly inspects the site for size, layout, structure, and construction quality. After this, they verify the findings with the documents provided. They may also take photographs to keep a record.
• After inspecting the property, the valuer notes the location's proximity to infrastructure like transport services, hospitals, malls, offices, etc.
• A suitable valuation method is used to calculate an approximate property cost.
• The valuer prepares a final report containing a detailed property analysis along with its estimated value. 

Factors Influencing Property Valuation

The calculation of market value of property involves considering several factors before agreeing on a set value. Among them, location and access to major infrastructure have the most significant say in their pricing.

Proximity to commercial establishments, land availability, property size & structure, amenities, affordability, etc., also factor into the property's retail value.

Conclusion

An accurate property cost estimate can help you make informed decisions about buying a new home. Lenders use this information to determine your eligibility for a home loan. A high home valuation can help you avail of higher loan amounts with lower interest rates and flexible loan terms.

SMFG Grihashakti takes pride in providing home loans with flexible repayment terms, swift online processing, and a 100% online application process at budget-friendly interest rates.