A quick guide to real estate valuation

Knowing the value of real estate is important for a lot of things. Some of these include sales listing, property insurance, and taxation. For most people though, real estate valuation is most useful for knowing the price of a certain property they want to buy.

At first, the concepts might overwhelm you, but it’s not that hard to understand once you get to it. 

Century 21 is here to help you with your real estate valuation needs. Here’s a quick guide to what it is and how it works! 

What does a property’s value mean?

A real estate property isn’t like a consumer good that you can use up. What you can get out of a property is something you receive over a long time. Thus, you can consider a property value as the worth of future benefits you can get from having ownership of it.

As it stands, there are four elements of value: 

1. Transferability

This refers to how easy it is to transfer ownership of the property

2. Demand

This refers to the desire people have to own the property

3. Scarcity

This refers to the limited availability of properties

4. Utility 

This refers to how the property is useful to the owner’s needs

If you want to know the value of a property, you need to consider government controls, social trends, and environmental conditions. These factors directly affect the four elements mentioned above.

How do you find out the value of a property?

To figure out the value of a certain property, you need an appraisal. An appraisal is an opinion or estimate that determines a property’s market value. The market value is the price the property will most likely be. 

It’s crucial to note that the market value of a certain property won’t always be reflected on its market price. Sometimes, the market price of a certain property can be lower than its market value because of other factors.

What are some appraisal methods? 

There are three appraisal methods that are used to determine the value of a property. These appraisal methods all rely on a careful collection of accurate data regarding the property and its location.

  1. Income Capitalization Approach 

Known as the income approach, this method estimates the value of properties that generate income such as shopping centers. To do so, the method looks at the dynamic between the rate of return an investor needs and the income a certain property generates. Appraisals using this method are simple for properties that generate a steady income.

  1. Sales Comparison Approach

Also known as the market data approach, this method is useful for knowing the value of single-family homes and land. It is the value you get by comparing a certain property with other similar properties.

  1. Cost Approach

The cost approach is a method that estimates the value of a property that has had one or more buildings constructed on it. In this method, each building in the property has its own separate estimate. These are then all added to make up the value of the entire property. 

This method is often used on properties that don’t generate income and aren’t often on the market. These include schools, hospitals, and churches. 

You can use this guide to give yourself an understanding of real estate valuation. If it’s still complicated, don’t fret! Century 21 can handle that task for you. We can provide you with real estate valuation that makes use of the best appraisal methods for your property.