When you are selling off a flat or a house, you always have to consider how much you can ask for it. Similarly, when you are on the market buying a property, you can’t help but wonder how much the actual market value of the house is, despite the asking price. This is doubly meaningful for a real estate investor. So, property valuation methods are our topic today.
The process of figuring out the actual cost of a given flat or house is called property assessment, or pricing assessment, which are more commonly known as property valuation in Birmingham. There are three main methods in which this is carried out. We will discuss each method today.
Importance of Property Valuation
Property valuation is the very process in which the actual economic value of a real estate investment (like in an apartment or shop or house) is determined. This process in general seeks to determine the fair market value of a real estate property. That is to say, to find the price at which an informed seller willingly sells his or her real estate property to an informed buyer.
Property valuation Birmingham is an important matter around which the buying or selling cost depends. It is the main factor that determines how much taxes to pay while the sale is carried out, and how much insurance there is to pay or will be eligible for.
But not only that. Property valuation is mandatory as well if you are buying the house with a loan. The moneylender (like a bank) will demand a fair price appraisal before they will give you the mortgage. This protects both the bank and the buyer from the effects of unfair price, high or low.
3 Methods of Property Valuation
Approach by Income
In this method, the property’s value is determined based on the income it generates. This income is divided by the capitalization rate, and that becomes the fair value of the house or shop.
To do this, the estimator first needs to find out the gross income the property would make when it is running at 100% capacity. Then they would need to figure out the actual expected revenues the property can generate, taking into account the standard vacancies in the area within a given period of time. They would also need to estimate the expenses of the house, and with the help of all this data, the real net income of the house can be figured out.
Approach by Sales Comparison
Another way we can perform property valuation in Birmingham is to compare the market sales data about similar properties in the same location, and estimate a value depending upon that. Or, we can directly use a very similar property that has been very recently sold and use that for evaluating the property in question. This is most common when a developer is selling out apartments off a housing block — they would be designed the same way and sold at the same time, and therefore one’s price can be used to find another’s.
Comparable properties, also known as comparables, or comps, must share certain features with the property in question. Some of these include physical features such as square footage, number of rooms, condition, and age of the building; however, the most important factor is no doubt the location of the property.
Approach by Cost
Another way you can do property valuation is by determining the cost of building it. In this method, they consider the cost of the land on which the property stands, and the construction cost of the house, and find out the cost of the property. This method of property valuation in Birmingham is very common if the property is of a special, uncommon type whose value is not easily determined by income or market data, like educational or health facilities.