Different methods for house property valuation

 

Every real estate investor knows the importance of House property valuation. Valuing the right way enables investors to make good decisions in making their offer. It helps to determine how much exactly a property is worth, renovation charges and whether it will be worth it when making a deal. Generally, appraisers use three main methods to evaluate house properties. Read on to know more.

The sales comparison approach

One of the popular ways of determining the value of a property is by analyzing the surrounding properties. It gives you an insight into the market value in the neighbourhood. Check out the sale value of an identical property next door. 

Here are some of the things an appraiser should look out for when following this approach.

• Size of the house

• Size of the lot and compound apart from the built-up area

• Age and condition of the house

• Home amenities and facilities 

• Desirability to take up residence in the locality

• The proximity of the property to transport facilities and stores

• Date of sale of any nearby properties

Due to all these factors, different appraisers will offer different values even though it is the same house property. They are just estimates and cannot be taken as a specific rate. 

The cost approach

Usually, when an appraiser is given the task of valuating a house property, they cannot find another property that is similar in the locality. This is especially seen in the rural places where it is challenging to arrive at a value for the sale using the above method. Each property is unique, while some are small, others might be bigger. This is where the cost method can be used for 

house property valuation.

In this approach, the real estate appraiser should take into consideration the current condition of the property. Building a new house from scratch is like buying a new house. The existing house may not be in a good condition. They calculate the depreciation to find out how much the existing house is worth in comparison to building a new one. 

Here are some of the factors to be taken into account when calculating using this method.

Deterioration of the home

Appraisers look at the physical condition of the house and whether it shows any signs of deterioration. They check the building for cracks, holes, crumbles, and crevices. They analysed the foundation, roof, amenities and facilities, old mechanical systems and other such aspects.

Functional hindrances

Real estate appraisers check for any hindrances that prevent the proper, inhibited use of the property by the buyers. One such example of such a situation arises when one has to cross one area of the house to reach and use the other. 

Economic obsolescence

The location of the house and other factors in the neighbourhood can determine the price of the property.

The income capitalization approach

In this approach, the cost of the house property is determined by whether it is capable of generating income in any way. This method is usually seen in the case of apartment and office buildings. Both direct capitalization and gross income multipliers are used. 

These are some of the best and most used House property valuation methods.