Real estate valuation is important as it allows you to determine the value of a particular interest in a property on a particular occasion for a specific purpose. Market value is described as the projected amount of a property to be exchanged on the valuation date between two interested parties, namely the buyer and the seller, in an arm’s length transaction after proper marketing, with a competent, cautious action without pressure. In this transaction, both parties do not have a special relationship with each other that could affect the determination of the property price.
There are many different methods of valuing property. In fact, there are five. One of them would be to use the comparison method. It involves analyzing recent transactions of similar properties, compared to your property, which is available in the market between your property and another similar property. It is usually used when there are enough recent transactions in progress, which allows us to indicate the value of the property.
Value adjustments will also need to be made due to certain factors, such as post-purchase expenses, location, and physical characteristics.
The income method is one of the other methods that use comparison to estimate the value of your property, except this time we would be comparing rents for similar properties. This method involves estimating the present value compared to the future, depending on the future benefits that may exist. Future benefits may include services such as shopping malls, supermarkets, and new MRT stations.
Another method would be the cost method. It is based on the theory that people will not give more for an older building than it would cost to build a replacement property that provides similar function and utility. It is generally used to value properties with little or no market transactions, such as schools and churches.
Another method would be the profit method. It is used for the valuation of properties with commercial potential and there is no recent market rent for similar properties. First, we can get the amount of the profit by deducting the purchases from the estimated amount of the profit of the company, which is divided into 2 parts, for the tenant and the owner. Using the tenant’s earnings, we can find out the equity value of the property.
The last method would be the residual method. It is generally used to value properties that are undeveloped, have buildings that could be improved or have no economic value, and are awaiting demolition and replacement. The value that can be obtained by deducting expenses from the estimated value of the property after development is the residual value.
Among the five methods, the first three are the most widely used. With these methods, you will be able to estimate the value of your existing property.