What Are The Different Types of Property Valuation Methods

Before listing your home on the market, it is always a good idea to opt for a property valuation in order to find out the true worth of your property. Of course, every homeowner has a reasonable idea about how much their property is worth, but it is always important to double-check to ensure that your selling price is as per the market average. Whether you are buying a home or selling a home, it is always a good idea to opt for a free property valuation. Continue reading to find out what are the different types of property valuation methods and which method will work best for you.

The comparative method

As the name suggests, the comparative method of property valuation is one where the buyer or seller will compare the value of similar properties in the area. Keep in mind, that the comparative method can only be used for similar properties. For instance, if you own a three-bedroom house in Leeds, then you will have to look at similar three bedroom houses in Leeds that have been sold recently to find out the approximate value of your property. Of course, factors such as the size, location, additional amenities, age of the property, and condition of the house could impact the final valuation of the property. In order to successfully use the property valuation method, the market conditions need to be stable and there must be a decent amount of properties sold in the area to reach a conclusive figure. This method is best for homeowners, sellers and buyers who are interested in finding out the worth of their property.

The contractor’s method

More often than not, investors and estate agents use the contractor’s method to calculate the value of a property. Essentially, the contractor’s method is used if there are no similar properties in the area or if the market conditions are not stable enough to use the comparative method. The property evaluator will attempt to figure out the cost of creating a brand new property that is equivalent to your property, then he or she will adjust the valuation amount depending on factors such as the age of the property and the wear and tear of the property. The final figure will give you a fair idea of how much your property is worth. This valuation method is ideal for property investors as well as buyers who are interested in purchasing holiday homes.

The profits method

The profits method is essentially used for commercial properties. This method can be used in a slow market as well as an unstable market, making this the preferred valuation method among estate agents. Essentially, the property evaluator will reduce the expenses from the gross profit to figure out the valuation of the property. In the profit method of property valuation, the value of the property is driven largely by the profitability of the company or business occupying the building, and not so much the value of the land or building itself. This method of valuation is appropriate for hotels, cinemas, pubs and other such commercial buildings.

The investment method

The investment method of valuation is used to determine the worth of freehold properties and leasehold properties based on the potential of the property to generate income in the future. In simple words, the investment method will calculate the net present value of the property by calculating the profit, which is then used to calculate the future rental income and then it is discounted back to the current day. This method of property valuation is ideal for landlords, property investors as well as leasehold property owners.

The residual method

The residual method of property valuation is used to value property that could have development potential. This method can also be used to value empty plots or vacant land that can be further developed by changing their current use in order to create something that is profitable. In order to calculate the value using the residual method, the evaluator will calculate the gross development value and reduce the development cost from this amount. Keep in mind, that the developer’s fee is also included in the development cost. This method can be rather challenging as the evaluator has to keep in mind various factors that have a tendency to change, such as labour cost, the cost of raw materials, taxes and so on. The residual method is the best method for developers and construction companies that are looking to create residential or commercial projects.

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