The first obstacle in selling a property is to find out its actual worth and market value. Property valuation services help a great deal in assessing and fixing the correct value of a property that the owner intends to sell or rent. Property valuation services help a property owner determine a fair and competitive value of the property to avoid loss or mistake. To initiate this process, the property valuer visits the property, assesses the condition, layout and appealing aspects, and determines the market value.
There are broadly 5 steps in the process of property valuation. We list a step by step process of the property valuation process, which is as follows:
Submission of Property Documents
To initiate the process of property valuation, the owner needs to submit property-related legal documents to the valuer for correct assessment. These documents are a contract of sale, a title deed, building layout/ floor plan, property tax receipts, land approvals (if any), etc.
The next step of property valuation includes a physical inspection by a certified property valuer, who will do a thorough internal and external inspection. The valuer is an experienced certified evaluator who conducts the physical valuation of the property and based on the findings prepares the final report. The valuer may look at the architectural style, layout, size, condition, and construction quality of the property.
Property Measurement and Attestation
To assess the accurate property value the valuer will measure the property, cross verify with legal documents, click necessary images with a date stamp, and analyse the actual health of the property. The valuer will note down all the relevant information about the physical health of the property, legal approvals, and evaluate the property as a whole unit.
Property Location Assessment
Post evaluating the internal and external features of the property, the property valuer assesses mileages that the property enjoys due to its location. These aspects contribute significantly to the value of the property. Some of the major elements are the locality of the property, demand of real estate in the locality, public infrastructure, civil transport and amenities, shops, malls, offices, hospitals, and such.
Final Report of the property
Finally, the property valuer will prepare the final report describing the various countenances of the property. The final report will include descriptions about the location, title details, site description, planning, comparable sales, valuation figure, pictures of the property and disclaimer.
Benefits of Property Valuation Services
Why should a buyer or seller opt for property valuation services? There are a number of benefits that accrue with this service. Property valuation services help a seller or buyer in the following ways:
Estimate the actual market rate of the property
Provide a comprehensive report about the property
Highlight the merits of the property
Highlight locational advantages
Gain expert advice and tips on selling the property
To assess the viability of potential future development projects
To assess the profitability and income-generating capacity of a property
Methods of Valuation
A property valuer may adopt different types of valuation methods while conducting property valuation. In the majority of cases, the property valuer uses the comparative method, investment method and profits method to land up at the valuation figure. But some properties may demand for a refined analysis to add extra leeway to the end-value of the property. Below mentioned are the five methods of valuation of property:
1. Comparative Method
Also known as Inferred Analysis of property value, this methodology involves comparing the prices of the property in the same area. The final value of the property is derived based on the value of the neighbouring properties. Under this method a close examination of similar buildings/ property having matching characteristics and dimensions. Commonly used, the comparative method is usually utilised while assessing the market value of a residential property.
2. Profits Method
Profits Methods is commonly applied while conducting a property valuation of business property. With the help of this method market value of properties like restaurants, rental office space, mall, hotel, etc., are assessed. The valuer calculates the market value of the property by taking the consecutive three years average operating income of the business. This number is secured with the help of the profit and loss statement of the business.
3. Residual Method
This valuation method comes in handy when an investor, developer or owner is evaluating the property value for future development. The Residual Method helps in assessing the viability of the property, whether it holds potential for a development project, redevelopment project or rental purposes. Under this method, gross development cost, building cost, property builder/ developers profit, and fees are all considered while calculating the property value.
4. Contractor’s Method
The Contractor’s Method or Cost Method utilises the replacement value of the property technique. Where Comparative Method and Profit Method fail to provide an accurate estimate of the property, then this method is employed. In this method, each component of construction, cost of each construction, up-to-date construction techniques, the value of land, and reconstruction cost are added up together. Further to arrive at the market value of the property a representative depreciation figure is deducted from the previous number to arrive at the final estimate.
5. Investment Method
The Investment Method is a practical method of assessment effectively used to fix the market value of commercial properties. The market value of the property is directly related to its income-generating potential. This method provides a fair view which involves the conversion of income earned (both present and future) from the property into an approx. capital sum. The valuer here employs discounted cash flow method and considers the future cash flows that the property owner will generate from the property.
Purpose of Property Valuation
Property valuation services can be availed for different types of purposes as mentioned below:
For Selling or Buying Property
Before hanging the ‘On Sale’ or ‘For Rent’ board on the property, it is essential to get it assessed and valued. The process helps to fetch the fair market price of the property and get a better understanding of the real estate market. A certified valuer will inspect, evaluate, and share the final market value considering all the factors associated with the property.
For Renting Purposes
If a property owner is looking to rent out his/her property, then property valuation services help in determining reasonable and competitive rent. Post receiving the final evaluation report of the property, the owner can fix the rent between 6-10% of the total market value of the property.
For Mortgage Purposes
Property valuation becomes vital when a buyer is planning to mortgage the property. The amount of loan is directly related to the final appraised value of the property. Various lending terms and conditions are influenced by the final valuation and worth of the property.
For Taxation Purposes
Different types of taxes are associated with property be it a house, commercial complex, or land. The tax associated with such properties is a wealth tax, property tax, municipal tax, etc. To pay these taxes to the government the actual worth of the property needs to be assessed to serve as a basis for tax calculation.
For Transfer of Property Title
In several cases, the title of the property is transferred to another person, say, a relative or legal heir. To initiate the process for transfer of property title property evaluation becomes imperative as the stamp duty is calculated as per the estimated value of the property. Hence, first, the property value is estimated and then the stamp duty is calculated to complete the transfer of property title.
Acquisition and merger cases are often heard and seen in the news, where sometimes one company takes over another company or property. In such cases, the evaluation of the property in question is done beforehand to determine the final market cost. This helps the bidders or buyer’s lay out the acquisition plan and trace the funding resources.
Thus, property valuation services are not only crucial in selling or buying a property, but it also helps assess the market value for different purposes.