8/13/2019 Valuation - MCM 625

1/5

8/13/2019 Valuation - MCM 625

2/5

1. The Comparable Sales MethodThis method is one of the more common techniques used in estimating the value ofproperty for sale and is based on the prices of similar properties that have been sold in thelocal area. It is also sometimes referred to as the Inferred Analysis. The principle of thismethod is that the value of a property is based upon what it is likely to sell for. Thismethod therefore incorporates relevant market conditions and activity within a particularlocation.

A wealth of comparable property data is collated and characteristics, such as details ofrecent transactions and features of the property, are analyzed. These include:

The date of the transactions How the property was paid for How fast the transactions were The property size The condition of the property The location Building regulations, etc.

Once the data has been analysed, an appropriate price range can be attributed to yourproperty, with properties most similar to yours getting a higher weighting in the analysis.

You can search for properties sold in England and Wales right now on Primelocation.com

and this will provide you with a basic indication of how much properties like yours havesold for in your area. This service is absolutely free for Primelocation.com registered usersand can provide invaluable information if you are looking to achieve the best possible pricefor your property.

2. The Income MethodThis technique is different from other methods, as it focuses on the intrinsic value of ahouse or flat to an individual. The principle is based upon understanding the current valueof the property by assessing the future potential income of the investment (if the property

is to be let, for example) or its potential re-sale value. As an example, if a buyer wasthinking about buying a property to let, they would use this method to understand howmuch annual rental income they might expect from the property over the next few yearsand also how much the propertys value might appreciate over the next few years in orderto assess its value to them.

8/13/2019 Valuation - MCM 625

3/5

3. The Cost Approach

The Cost Approach to valuations looks at the replacement value of the property byunderstanding the cost of all the relevant components, such as the property itself and theland. Essentially, the principle lies in calculating the value of the land without the buildingin a free market, establishing the cost of reconstructing the property on the land and thendeducting the value of depreciation that has occurred to the building in question.

The most common approaches to property valuations tend to utilise a combination of theComparable Sales Method and the Income Method.

4.Valuation price versus valueRegardless of the valuation price you arrive at for your property, it will only be worth what

a buyer is prepared to pay for it. If, for example, your property or road is highly soughtafter, in a market where demand is strong and supply is weak, you may find buyers areprepared to pay more than the marketed price to secure the property. Similarly, in a weakermarket and in a less sought-after area, the opposite is likely to occur.

Valuations, however you obtain them, will only ever be a guide to how much your propertymight eventually sell or be let for. It is advisable, however, to use the professionals to valueyour property to maximize your chances of getting the very best price. Find an estateagent now on Primelocation.com.

The content provided in the Primelocation.com guides is for information only. In all cases,independent and professional advice should be sought before buying, selling, letting orrenting property, or buying financial services products.

Property Valuation Methods for Apartments

In India the property valuation methods and property valuation process depends on the

location of the property, the quality of construction, maintenance of the property,

proximity to major infrastructure developments and more. Safety and security of theapartment is another factor which is closely looked upon in the present times.A

property located in or near the riot prone area has lower rates, even if it is in the best of

location and filled with all the modern conveniences and amenities. Good connectivity of

the property with the bus depot, railway station and airport adds the face value of the

apartment or house. Following are important property valuation methods.

8/13/2019 Valuation - MCM 625

4/5

1. The Investment Method:The investment method of valuation is directlyrelated to its income producing power. This method is a practical and discreet

one, extending a fair view of the value of the property. It involves converting apropertys income flow (rent) into an appropriate capital sum. Based on

discounted cash flow method, it takes into account the future cash flows that the

real property can bring to the investor.

2. The Comparison (or Comparative) Method:This method is best forresidential property or purchase of property not usually for investment purposes

but for occupation by the owner. In this method, the latest sales figure of

property in the market is devised. It takes into account of latest sales figure and

comparative values. Based on the comparative values, it derives capital values forproperties and rental yield.

3. The Residual Method:This method is used when a property has potential fordevelopment or redevelopment. Residual valuations for property are regularly

made by people who purchase residential properties that they believe could be

made more valuable if money were spent on improvements and modernization.

This method is generally applicable in development projects.

4. The Contractors Method:The Cost Method /Contractors Method of valuationof property assumes that a prospective purchaser would be prepared to pay the

same amount for the premises as it would cost him or her to purchase a similar

property elsewhere. What is required is not the cost of an exact duplicate of the

existing building, but the cost of providing the same accommodation in a similar

form using up-to-date construction techniques. It is generally used in rating all

the compulsory purchases.

5. The Profits Method:For certain types of property, capital value is estimatedfrom the amount of trade or business conducted at the property. In these cases,

the profits method is used to take the gross earnings and then deduct the

working expenses, which are interest on the capital provided by the tenant and

an amount for the tenants risk and enterprise. The remaining balance is the

amount that can be paid in rent.

8/13/2019 Valuation - MCM 625

5/5

Valuation Report is prepared by expert valuers

The valuation report for a property is prepared by expert valuers. If you are obtaining a

mortgage, your lender will require a valuation by one of his panel surveyors, to ensure that

if the mortgage is unpaid the outstanding amount will be covered. The estimated value of

property is only valid as of a given date or period of time, since the market conditions, the

investment climate and other factors change frequently.

Valuations are also required during for tax purposes and probate. Wealth tax is to be paid

by property owners owning property above a certain value. The valuation report for a

property is prepared by chartered surveyor and they offer impartial, specialist advice on a

variety of property related issues and the services which they provide are diverse.A

chartered surveyor is an expert in the value of property who has wide experience in

and knowledge of the property market.

Sometimes, the statute (Law) lays down the methodology to be followed in arriving

at the value. In such cases, the valuation report should be prepared taking into account

the methodology. For example, for wealth tax purpose, the Wealth Tax Act specifies the

procedure to be followed in arriving at the value of a property. The main assumptions and

basis for arriving at the value of a property should be clearly mentioned.

Disclaimer: The article contains data collected from various sources and the use of same is at readers

discretion.

Prepared by: Dr. Sarbesh MishraAssociate Professor, Finance AreaNICMARs CISC, Hyderabad.