What is Property Valuation

Valuation is simply a model to try to determine price. Value is the end result. It is the quantification of an understanding of the market; the legal impact; the physical constraints;the planning regime; the availability of finance; the demand for product and the general economy all influence the value of property. Valuation is the process of determining market value; an estimation of the price of exchange in the market place. Asset valuation and estimation is an art in itself employing several analytical and scientific faculties! It requires tremendous domain knowledge and a constant industrial update to come with most scrupulous and credible valuation/estimation.

The valuation of real estate is central tenet for all businesses. Land and property are factors of production and, as with any other asset, the value of the land flows from the use to which it is put,and that in turn, is dependent upon the demand (and supply) for the product that is produced. Valuation, in its simplest form is the determination of amount for which the property will transact on a particular date.

The objective of this paper is to provide a brief overview of the methods that used in real estate valuation with a particular emphasis on the valuation of specialised property.Specialised Properties are properties that are more heterogeneous than homogonous. That is, the nature of the property is such that the type of property concerned don’t transact sufficiently to be able to determine value by comparison of previous sales. In such circumstances the valuer needs to resort to a valuation model that addresses the underlying fundamentals of that property so that its value can be determined by reference to the wealth producing qualities of the asset.

The valuer looks at each property individually, beginning with an objective inspection of the interior and exterior of the home or building, as well as driving through the surrounding neighbourhood. The valuer looks for the assets, as well as the detriments, of the property.
For homes, gross living space, quality of construction, location, layout, the number of bedrooms and bathrooms, the lot size, condition of the home and land, heating, landscaping, decks, fencing, recent renovations, amenities provided by the surrounding neighbourhood, are all considered by the valuer.Living space is calculated by measuring the outside of the home. It does not include such areas as the garage, porches, sheds, and so on. Basements are generally calculated separately from the living space. The contributory value of basements is determined by the local market, local regulations, if it is finished or not (and the quality of the finish), and so on.

Price, Worth and Market Value

For any valuation model to have validity it must produce an accurate estimate of the market price. The model should therefore reflect the market culture and conditions at the time of the valuation. It should be remembered that the model should be a representation of the underlying fundamentals of the market and that the resulting figure of the valuation is “value”.

The word “value” is often used to describe three distinct, albeit related, concepts. To clarify maters, the following convention is adopted:
Price is the actual observable exchange price in the open market (it is historic comparable information.
Value or Market Value is an estimation of the price that would be achieved if were the property to be sold in the market, andWorth is a specific individual’s perception of the capital sum that she/he would be prepared to pay (or accept) for the stream of benefits that she/he expects to be produced by the property.

Click Here To Know About Different Methods of Valuation