A property valuation service determines the value of a piece of real estate for a variety of purposes such as buying, selling, or refinancing. Further, the process typically involves a professional appraiser conducting a visual inspection of the property and analysing data such as the property's age, condition, and features, as well as comparable sales of similar properties in the area. Moreover, the appraiser will then provide a written report with an estimated value for the property. Further, it’s important to note that the value determined by a property valuation service is not the same as the market value, which is the price that a willing buyer and seller agree upon. This article is all about a quick guide to property valuation service.
A quick guide to property valuation service
Property valuation is very important for an investor. Moreover, property buyers and sellers in Pakistan must consider the valuations given by real estate brokers and agents.
There are a lot of factors that affect the real estate market
- Economy of country
- Policies of government
- Opportunities of employment
- Budget of country
- External investors
- Interest rates
- Demographics of country
In Pakistan, there is no suitable system of property valuation which results in fraud in the market. Moreover, to avoid the risks, buyers, and investors require a reliable system and guide for property valuation so they never lose money in risky and bad investment options.
Several factors affect the value of a property
- Location
- Property condition
- Local infrastructure
- Environment
- Conditions of demand and supply
As we all know real estate is an important sector. The development, growth, and investment flow, all need an accurate property valuation.
Need for property valuation
Importance of property valuation
If there is a proper and suitable valuation of property in a country, there can be the fastest growth and boom in the real estate sector. Furthermore, the real estate sector can be a driver of success in an urban environment it requires a high level of transparency
Requirement on an individual level
On an individual level, property valuation is required for purposes like determining rent payments, tax, etc. and maintaining insurance, and loans. Moreover, if there is no provision for a proper valuation model, we cannot mitigate the chances of fraud.
Why valuation is difficult
- Size uniqueness
- Location
- Design
- Local infrastructure availability
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Why valuation of property is carried out.
It is also important to understand how the valuation of property is carried out. It is necessary to use this process not only in the process of buying and selling but also in analysing the potential of an area. Moreover, to make deep assessments about loans, calculation of depreciation, etc.
In the case of residential and commercial
Usually, we buy apartments and commercial properties in form of shareable parts, so in this case, if we do not use the valuation process then it can lead to exploitation.
In the case of the construction and development sector
If a company applies a proper process valuation besides a suitable investment it can be a success factor.
Some traditional methods of property valuation
- Cost of property.
- Price of property
Sometimes the cost of buying a home is high but the value is low due to faulty foundations.
- The realization of the benefits of property is a time-demanding process so that’s why the economic and social factors should be included in the valuation.
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Other effective factors
- Demand
- Utility
- Scarcity etc. also affects the value of property
These factors can be a quick guide to comprehending property valuation services.
Three methods
- Comparable sales approach
- Cost Approach
- Income approach
- Comparable sales approach
In the first method, we can say that it is all about observing the value of currently sold properties but the condition is that both should have the same characteristics. Further, the size and location of the comparable also matter.
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Adjustments
Age factor, building condition, physical features. Etc.
Further, it is advised that the property should be compared with other two or three properties of the same characteristics. Then determine the final average.
Cost approach method
In this approach, based on cost like we check total land value equals to cost of land adding the construction cost and subtracting the depreciation cost. Further, we use this method to value new property. Briefly, this method involves estimating the cost to replace the property and then subtracting any depreciation.
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Income approach
It is a method that determines the value of a property based on the returns that an investor can get from that property. Moreover, it can be done by dividing the net operating income by the capitalization rate. Further, it takes into account the property's income and expenses, as well as the current market conditions. Briefly, we mostly use this method in income-producing properties such as rental and commercial buildings. Moreover, it involves estimating the property's net operating income and then using that number to calculate the value of the property
In this method, the investor uses the amount of generated income along with considering the other factors for the determination of the worth of property in the market.
- Using these three methods can give a transparent analysis of the value of a property.
Furthermore,
AVM (Automated Valuation Model):
This method uses a computer algorithm to estimate the value of the property based on data such as recent sales of similar properties and public records.
Hybrid Method:
The Hybrid method is a combination of the above-mentioned methods and it takes the best features of the other methods and combines them to arrive at the most accurate value.
The Market Approach:
This method compares the property being valued to similar properties that have recently sold in the area.
These methods can be a quick guide to understanding property valuation services.
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Artificial intelligence should be used for property valuation.
It can predict the current and future market price in an efficient way than those traditional methods.
Hurdles
- In this method, there is a requirement for complete digital mapping.
Some companies are using AI referred to as online property valuation.
Conclusion
Ultimately, the most appropriate method will depend on the property being valued and the purpose of the valuation. Moreover, a professional appraiser will be able to determine the best method to use and provide a detailed report. Further, it is important to note that different properties, different markets, and different purposes of valuations might call for different methods to be used.
Moreover, proper valuation of property can result in lots of benefits like market acceptance, regulation in supply and demand, protection from fraud, etc. Furthermore, it requires trust and confidence when choosing real estate agents for the valuation of property but there are great chances of misusing this trust in real estate. In this article, we have mentioned a quick guide to property valuation service.
