Home Buying

All You Need To Know About Property Valuation

3 NOV 2023

Whether you’re buying a home for the first time or a potential investor who’s curious about the property, understanding property valuation is a very important step that needs to be taken into consideration as it will help you analyze the returns you may get in the future. It plays a key role in real estate transactions, tax assessments, insurance premiums, etc. The factors that revolve around property valuation are location, age of the property, sustainability of the property, amenities, accessibility, and others. Before delving further let’s understand what property valuation is.

What is Property Valuation?

Property valuation

Property valuation is the process of obtaining an estimate for the value of a property based on location, condition, and various other factors. A qualified surveyor conducts the valuation in person, taking notes and pictures, and provides you with a valuation report thereafter. 

  • Location
  • Number of rooms
  • Measurements and site boundaries
  • Condition of the property
  • Structural defects
  • Landscaping
  • Associated risks and benefits

Importance of Property Valuation

Property valuation is a significant step for many reasons. It helps homebuyers and sellers determine a fair selling price, ensuring that neither party is overpaying or underselling. For homeowners, it becomes a valuable tool to assess their property’s appreciation over time.

Fair for Buyers and Sellers

A potential investor or buyer is prevented from overpaying for a property, while for sellers, it helps in setting a reasonable price. Overpricing a property can lead to it languishing on the market while underpricing can result in lost profits.

Prevents Property Litigations

In India, property conflicts are not uncommon. That’s where property valuation comes into the picture as a savior. It facilitates the equitable distribution of inheritances among heirs in this way. And not just that, property valuation protects investors against dishonesty and fraud schemes. It supports and guides one in making better decisions about real estate since it gives precise market value.

Proper Wealth Management

With property valuation, homeowners can track a property’s appreciation over time through regular valuations. It’s a valuable tool for wealth management and estate planning, enabling individuals to make informed decisions about passing on assets to heirs or beneficiaries.

Useful for Renovation

A building’s or property’s value rises with renovation. To determine the true worth of a house, however, people should consult a qualified property valuer before making any remodelling investments.

Property Taxation

Many local governments use property valuations to calculate property taxes. A precise valuation ensures that property owners pay the correct amount of tax, avoiding overpayment or underpayment.

Aids in Insurance Coverage

Property valuation is essential for insurance purposes. Underinsuring a property can leave you financially vulnerable in case of damage or loss while overinsuring can result in unnecessarily high premiums.

Helps in Financing and Refinancing

Lenders often require property surveying when you apply for a mortgage or refinance an existing loan. The valuation helps them determine the property’s collateral value and the loan amount you’re eligible for.

Helps in Home Loan Application

Reputable lenders require a property valuation to assess a home loan’s interest rate. It also establishes different mortgage terms and conditions.

Mortgage-Related Perspective

If a buyer decides to take a mortgage to buy a property, the bank would first undertake a property evaluation before authorizing the loan amount. The final property appraisal evaluation determines various mortgage terms and conditions. Before issuing a loan for many developments and redevelopment projects, the bank conducts a  valuation exercise to examine the project’s feasibility.

Factors that Affect Property Valuation

The following are factors that contribute to Property valuation.

Location

Location is one of the key aspects potential homebuyers take into consideration. Brokers often list higher prices for commercial properties in well-developed areas compared to residential ones, and freehold land properties tend to have higher values than leasehold plots.

Amenities

These days, it’s not just about the availability of electricity, water, or sewage. The needs of homebuyers are way beyond necessities. They opt for homes that come with amenities like security, swimming pools, multipurpose gyms, multi-purpose halls, etc.

Infrastructure

Investors take into account infrastructure development when considering property investments. The presence of roads, flyovers, railway stations, airports, bus terminals, educational institutions, hospitals, entertainment venues, retail markets, and other essential amenities closely ties the increase in property value.

Affordability

Affordability plays a very important role in real estate properties as it establishes a connection between property valuation, interest rates, and wages.

How to do Property Valuation – Different Types

Property valuation experts visit the property, get the details, consider various factors, and provide a report for selling, leasing or securing a loan. Here are some of the approaches taken by the surveyors to perform the valuation.

Sales Comparison Approach

The sales Comparison method also known market data approach assists property valuers in analyzing the current market rate of properties in a certain location to develop a valuation report. Real estate professionals also use this method to compare recently sold properties. Furthermore, the sales comparison approach is a common method for valuing single-family homes and land.

Profit Method

This process involves determining the value of a property’s profit by capitalizing it at an appropriate rate of return, taking into account various external factors. It is typically used for businesses in public properties, such as hotels, theatres, and event venues. A valuer assesses the property’s capital value by considering its gross revenue and operating expenses.

Cost Method

Property valuers use this method to examine the typical expenses of acquiring and constructing a similar property in the same area. They make a comparison to assess the property’s value. In a competitive market, property valuers frequently use this approach, which can provide varying insights into development and property values.

Residual Method

In property development, developers commonly use residual valuation, which involves determining the value of land or property by subtracting development costs from the expected future sales or rental income.

Investment Valuation

This method is used for analyzing the potential returns on an investment property. It considers the property’s cash flows, expenses, and future appreciation to determine its value to an investor.

Types of Property Valuation

The various types of property valuation are:

Market value:

The market value is determined by buying or selling a property. It is based on what a willing buyer would pay and a willing seller would accept in the open market. It considers factors such as comparable sales, property conditions, location, and current market conditions.

Investment value:

Investment value is used to analyze the potential returns on an investment property. This is crucial for investors who are looking to buy or sell income-producing properties. Here it considers the property’s cash flows, expenses, and future appreciation to determine its value to an investor.

Insurance value:

Insurance valuation ensures that a property is adequately insured by determining the cost of replacing it in case of damage or destruction. Here it calculates the cost of rebuilding the property and also includes considerations for materials, labor, and other relevant factors.

Tax value:

Tax authorities may use specific valuation methods for property taxation, which may not always align with market value. This is used to determine property tax assessments.

 

Conclusion

At Confident Group, we are committed to transparency and accuracy. Our premium flats and apartments showcase their true worth after stringent property valuation. Whether you’re looking to invest in one of the luxurious apartments, evaluate the worth of your existing property, or engage in any real estate transaction, knowing the true value of your asset is a game-changer. With accurate valuations, provided by professional surveyors you can embark on your real estate journey with the confidence that you’re making well-informed decisions.

Author - Webdura

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