How To Value A Property Correctly
Market research is needed if you are going to get a reasonable price for your property investment. When dealing with property management you will make more money when you negotiate on the asking price.
There are sites such as Right Move and Zoopla to help compare prices in the area. You will need to worry about structural issues or other factors such as poor neighbourhood conditions that will have an effect on property value. You need to think of the worst possible case. If you still think it is a good investment than chances are that it is.
What is property worth in my Area?
There are some good websites to find out how much property in a certain town has sold for in the past three months. They include:
You should speak to at least 3 different agents as well as surveyors so you can find out the sold prices of local homes. You should find similar properties such as the same number of rooms and a close by location that have sold or are for sale. You can use these figures to determine if you are getting a good deal.
Keep in mind if you are going to ask an agent how much an estate is worth they will often overvalue the property to get new business. They do not perform a valuation service but will give you their opinion. There are no laws saying this information needs to be accurate.
What reduces the value of the property?
You will find properties with different home colours, décor, and things that need to be adjusted for the property in question. If the home next door sold recently but is bigger and has a new kitchen you would reduce the value of the property that you are interested in. The same thing will apply if repairs need to be made.
If a major project needs to be completed be sure to reduce the amount that you offer. If you need to spend money putting on a new roof or there is another issue you need to reduce your offer. The estimated sales price should also reflect the cost of repairs. If these items are already considered in the sales price you can make another offer.
You can choose not to make an additional offer if you think the seller will relist the home. Be objective and do not get emotionally involved in a property.
There is a fact that many people do not know. The asking price by the seller or the agent is usually inflated by 10-15% of the expected the sale price. To determine how much a property has been reduced by and how much it is really worth you can find websites that offer this information along side how long it has been on the market.
If there are similar homes for sale on the steer you should get an idea of how much a home is worth and how much above value a home is being sold for.
When accurately assessing the value of a property there are some things that are not taken into consideration. They include:
- How much the seller paid for the property
- How much money they have spent on refurbishing the property
- How much money they are asking for it
The one things to keep in mind when making a sale the property is worth as much as the buyer is willing to pay for it.
Five Methods of Valuation
The comparable sales method is also called the inferred analysis. This will estimate the value of a home by comparing the price to similar homes that sold in similar locations recently. The property is assumed to be worth what it will sell for in a reasonable time period. This works with most homes. It is the most commonly used method for assessing property value and is generally accepted.
The Investment Method
This method involved some risk and a return is expected. The yield is the years purchased formula and the present value formula to make a number the rent is multiplied by.
The value of money is something that is often argued over as the cost of living increase.
Take into account inflation. For example, a loaf of bread will cost more money this year than it did last year. The increase is the inflation percentage averaged over other products.
The same idea is applied to housing. Your money will buy you less in the future than it does at the current time.
There is a risk that you may not be able to sell the home at a higher price in the future. There is an opportunity cost and you may be able to invest in other place and make more money.
The investor may think they will make more money but accept a lower rate.
The Profits Method
This method is used for commercial property where the value is driven by how much of a profit the business. Cinemas, Hotels, pubs and similar businesses can make money with this method.
Commercial property value still uses the comparable method.
If you cannot get enough information to compare for the commercial property then value the property using the profits method to remove any limitations.
To use the profits method the property must have an operational business currently open and running.
Hotels, pubs, and others are suitable for using the property method.
The Residual Method
If the property is looked at by inspiring developers or has the potential to be developed this method can work.
Property development and property appraisal go together. If there is not a careful budget and a detailed appraisal it will be hard to determine the risk and if a profit can be made.
Do not leave things to chance with a prospective development property.
The Depreciated Replacement Cost Method
The replacement costs are the cost to replace an asset of a company to restore it to the same value if the asset needs to be replaced. This can include the cost of the building, investment securities, liens on the property, and the accounts receivable.
The replacement cost can change as the market changes as well as the costs of assets for the future. Accountants will use depreciation to determine the cost of these assets over their lifetime.