Importance of Real Estate Valuation and the Different Valuation Methods

Real estate valuation is important as it allows you to determine the value of a particular interest in a property at a given time for a specific purpose. Market value is described as the projected amount of a property to be exchanged on the appraisal date between two willing parties, namely the buyer and the seller, in an arm’s length transaction after proper marketing, with a competent and cautious action without pressure. . In this transaction, both parties do not have a special relationship with each other that could affect the determination of the price of the property.

There are many different methods of valuing one’s property. In fact, there are five. One of them would be to use the comparison method. It involves looking at recent transactions of similar properties, compared to your property, which is available on the market between your property and other similar properties. Typically used when there are enough recent transactions in progress to allow us to indicate the value of the property.

There will also be adjustments to the value due to certain factors, such as expenses incurred after the purchase, location and physical characteristics.

The income method is one of the other methods that use comparison to estimate the value of your property, except this time we would compare the rents of similar properties. This method involves the estimation of the present value compared to the future, depending on the future benefits that may be. Future benefits could include services such as shopping malls, supermarkets and new MRT stations.

Another method would be the cost method. It is based on the theory that people will not give more for an old building than it would cost to build a replacement property that provides similar function and utility. It is typically used to value properties with little or no market transactions, such as schools and churches.

Another method would be the profit method. It is used for the valuation of properties with commercial potential and there is no recent market rent for similar properties. First, we can obtain the amount of profit by deducting the purchases from the estimated amount of the company’s profits, which is divided into 2 parts, for the lessee and the lessor. Using the tenant’s earnings, we will be able to figure out the equity value of the property.

The last method would be the residual method. It is typically used to value properties that are undeveloped, have buildings that could be improved, or have no economic value and are awaiting demolition and replacement. The value that can be obtained by deducting expenses from the estimated value of the property after development is the residual value.

Among the five methods, the first three are the most used. Using these methods, you will be able to estimate the value of your existing property.