It may seem like yet another expense, but a property valuation is a necessity for your successful real estate purchase. Benefiting the buyer and seller, a property valuation can help you to assess the current value of a property in an open and competitive real estate market.
This article will help explain what property valuation means and the basic valuation concepts.
What is a property valuation?
A property valuation is generally conducted on a request by you, or a lending institution (such as a bank) that is looking to fund the purchase of a property.
Normally produced as a report, a property valuation includes property information â€“ rates, size of the land and building, physical details on the construction and condition of the dwelling, details on any immediate issues that may need addressing â€“ as well as information on comparative sales in the area.
Estimating the value of real property is important to a variety of endeavours, including real estate financing, listing real estate for sale, investment analysis, property insurance and the taxation of real estate. For most people, determining the asking or purchase price of a property is the most useful application of real estate valuation.
BASIC VALUATION CONCEPTS
A main consideration in appraising is to determine a propertyâ€™s value; the present worth of future benefits arising from the ownership of real property. Unlike many consumer goods that are quickly used, the benefits of real property are generally realized over a long period of time. Therefore, an estimate of a property’s value must take into consideration economic and social trends, as well as governmental controls or regulations and environmental conditions
VALUE VERSUS COST AN PRICE
Value does not necessarily equal cost or price. Cost refers to actual expenditures; for example, materials and labour. Price on the other hand is the amount that someone pays for something. While cost and price can affect value, they do not determine value. The sales price of a house might be #150m but the value could be significantly higher or lower. For instance, if a new owner finds a serious flaw in the house, such as a faulty foundation, the value of the house could be lower than the price.
An appraisal is an opinion or estimate regarding the value of a particular property as of a specific date. Appraisal reports are used by businesses, government agencies, individuals, investors and mortgage lenders when making important decisions regarding real estate transactions. The goal of an appraisal is to determine a property’s market value (the most probable price that the property will bring in a competitive and open market).
Market price, the price at which a property actually sells, may not always represent the market value. For example, if a seller is under duress because of the threat of foreclosure, or if the property was sold in a private sale without being exposed to the open market, the property may sell below its market value.
Accurate real estate valuation is important to mortgage lenders, investors, insurers and buyers and sellers of real property.
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