Did you get a problem with how to value your real estate property? Don’t you know the real estate valuation process and the real estate valuation methods are not clear for you? Don’t hesitate to read this blog to get whatever you need.
Real estate valuation attempts to distinguish the value of a certain property. This is usually composed of land, buildings, or both. Real estate valuation requires an accurate understanding of the constructive and qualitative parameters of a building. Besides, factors related to its location and urban conditions have a role. Additionally, other aspects of the area are important as well. Let’s jump into the pool and know it deeply.
Real estate valuations help to assure you and your lender that the value of the property is based on facts and not just the opinion of the seller.
Valuing real estate is specifically important in the real estate business because each property is different. When you buy two shares of stock on the same day, both shares are identical. But that’s not the case with real estate.
You can’t simply walk into a real estate agency and ask for a property without considering the real estate valuation process. Hence, you can feel how crucial estimating real estate value can be. We know that some clients want to finance their property. Therefore, the lender should know if there’s enough equity in the property to get its money back. That’s the time, the value of real estate shows its benefits!
It is clear that two properties cannot be considered identical at all. Even two properties on the same street can be very different. In fact, even two houses next to each other, although they’re both the same in size and layout, will be different in terms of condition, fixtures, fittings, and presentation.
Thus, you need to determine the actual market value of the property at a specific time. If you are going to buy or sell a real estate property, you need to ensure that the mortgage is well-supported.
The real estate valuation model provides security for the bank and the customer, as well. Therefore, this is the best way to ensure that the house you want to buy is really worth the money.
The purpose of real estate valuation is to obtain market value or price. Now it is time to know the Real estate valuation methods. They are comparison, residual, update, and cost. The main principles of each method are listed below.
It is the main of the four valuation methods since it is usually present in most valuations. The comparison method of real estate valuation is based on the substitution principle.
Hence, the value of a specific property shouldn’t be more than the cost of buying another substitute property. Specifically, you need to do a careful search to find recent sales of similar properties. You can use them as comparable.
The Residual real estate valuation method is used in the valuation of soils where it is not possible to apply the comparison method due to lack of samples or comparable.
Unlike the previous method, the property to be appraised is not offered to individuals, but to real estate developers. Thus, the method bases its philosophy on considering the value of the land, as the residual value resulting from a real estate development promoted by a hypothetical developer.
Depending on the period of time, we can speak of two types of residual methods. The static residual method, for issues less than three years old, and the dynamic residual method, oriented to longer periods of time.
According to the Update real estate valuation method, the property that produces income, or has some future benefits, can capitalize or update the value at the present time.
The income approach is a real estate valuation method that puts the expectation of future benefits first and foremost. Therefore, the update method considers the market rent that a property can reasonably be expected to generate, as well as the potential resale value of the property.
The purpose of the Cost real estate valuation method is to value the replacement of a property with the current prices of labor and materials.
It considers the value of a property as the cost of the land plus the cost of replacing the property (construction costs) minus the physical and functional depreciation. We use the Cost method for real estate properties that you can’t sell easily, like schools, hospitals, and government buildings.
The most appropriate method to calculate the value of a property is the cash flow discount. It is based on capitalizing the expected profitability of the property according to the required profitability. Hence, we must take into account both the income and the future expenses that the property will generate.
Furthermore, you need to consider the discount rate, as well. The discount rate will be subjective, and will depend mainly on 2 factors:
The appropriate discount rate would be between 5% and 10% in most cases.
Additionally, we will demand higher profitability from houses whose income is less stable or are exposed to greater risks (legal, tax, natural, etc.).
On many occasions, there is confusion between what is a valuation and an appraisal, especially at the moment in which we want to buy or sell a property. We use both actions for valuing real estate. Although, there are substantial differences that we will define.
Mainly and, summarizing in a few lines, the main difference is its legal value.
The most important characteristic of the valuation is that it establishes the value of the property as a guideline without having to visit the property. The cadastral data of the same already offers its objective value. For this reason, there are online evaluations that simply by filling out a form determine its value. By not complying with a regulated procedure, they lack legal value.
The appraisal, on the other hand, is a legal certificate for the valuation. They carry it with a specific methodology that complies with the legal regulations. An architect or technician with a certificate can assign a value to the home through an official objective scale.
You need the appraisal to apply for a mortgage, for the distribution of a property, or the distribution of goods.
Thus, if we need to know the value of the property officially, an appraisal will be necessary, if we want to know the value on a personal level, real estate valuation methods will suffice.
There are different property valuation services. You can use these real estate valuation services for estimating real estate value precisely.
The property valuation services are provided principally to banks and their clients in full autonomy.
These real estate valuation services can provide you with a sureness to build your trust to buy or sell a property. Considering these detailed real estate services can help you in real estate marketing, as well. Good real estate marketing would come to result when you have considered all aspects of your trade. The more precisely you check the property value, the better you can sell it.
Among all real estate valuation companies, Hanna Commercial is one of the top ones. This company is a full-service commercial real estate brokerage firm providing comprehensive services including property management, appraisal, consulting, and more.
This real estate valuation company is located in Dallas Texas. It can help the clients with commercial appraisals issues. Additionally, it specializes in providing clients with accurate and on-time valuation services they need to make smart real estate decisions.
This well-known company can bring most of the services you need for valuing real estate. Besides, Valbridge is a property advisor. It is one of the largest national commercial real estate appraisal and advisory firms in the U.S. with 200 MAI-designated appraisers in 70 offices.
This post was last modified on August 10, 2021 22:58