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What is Property Valuation and How It Can Be Calculated?

By Ariel Linford Subscribe to RSS | May 21st 2012 | Views:
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Property valuation is an important step for variety of endeavors, which including real estate financing, listing real estate for sale, investment analysis, property insurance and the taxation of real estate. There are so many people who really give importance to real estate valuation before buying or selling at their property. But there are some who don’t know about the basic concepts and methods of real estate valuation. Through this article I will tell you about what is property valuation and how it is calculate.

Basic Valuation Concepts

Value

The basic purpose of property valuations is to determine the actual value of your property or premises. Also, main consideration in appraising is to determine a property'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 that may influence the four elements of value:

• Demand - the desire or need for ownership supported by the financial means to satisfy the desire;

• Utility - the ability to satisfy future owners' desires and needs;

• Scarcity - the finite supply of competing properties and Transferability - the ease with which ownership rights are transferred.

Value Vs. Cost and Price

Value is not necessarily equal to cost or price. Cost refers to actual expenditures; for example, materials and labor. 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.

Market Value

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.

Appraisal Methods

Three basic approaches are used during this process to determine a property's value.

Method 1 - Sales Comparison Approach

The sales comparison approach is commonly used in valuing single-family homes and land. Sometimes called the market data approach, it is an estimate of value derived by comparing a property with recently sold properties with similar characteristics. These similar properties are referred to as comparables, and in order to provide a valid comparison, each must:

Be as similar to the subject property as possible;

• Have been sold within the last year in an open and competitive market

• Have been sold under typical market conditions.

Comparables

Adjustments

Age and condition of buildings

Physical features, including lot size, landscaping, type and quality of construction, number and type of rooms, square feet of living space and whether or not a property has hardwood floors, a garage, kitchen upgrades, a fireplace, a pool, central air, etc.

Method 2 - Cost Approach

The cost approach can be used to estimate the value of properties that have been improved by one or more buildings. This method involves separate estimates of value for the building(s) and the land, taking into consideration depreciation. The estimates are added together to calculate the value for the entire improved property. The cost approach makes the assumption that a reasonable buyer would not pay more for an existing improved property than it would cost to buy a comparable lot and construct a building that is comparable in terms of desirability and usefulness. This approach is useful when the property being appraised is a type of property that is not frequently sold and is not an income-producing property. Examples include schools, churches, hospitals and government buildings.

Method 3 - Income Capitalization Approach

The income approach is the third method of real estate valuation, and is based on the relationship between the rate of return an investor requires and the net income that a property produces. It is used to estimate the value of income-producing properties such as apartment complexes, office buildings and shopping centers.

If you are living in Sydney or any other part of Australia, just hire a professional property valuation services. Some professionals also offer you depreciation schedule Sydney along with best property valuations. For instance you can also find capital gains tax calculator online to find out capital gain from your property tax.

Ariel Linford - About Author:
Lorenzo cliff has been working as a professional writer since 2009.His writing includes many articles for blogs, websites like for property valuations and many more. He prioritizes quality over quantity to write about depressiation schedule sydney and make sure that his articles are interesting and error-free.

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