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Did you know the average person is likely to move almost 12 times in their lifetime?
By the time someone reaches the age of 18, they are likely to move another 9.1 times on average.
This makes real estate valuation crucial, to make sure you are getting the best deal for your money.
If you are looking for information on real estate valuation, keep reading.
Find 5 things you must know about valuing a home
1. Basic Valuation Concepts
While valuing a home, it is important to keep in mind that the property’s value is based on the present worth of the future benefits of owning a certain property.
Property valuation is based on several factors influenced by both micro and macroeconomics. Some of these factors include:
Demographics – which takes into account statistical data about a specific population. Including income, gender, race, age, and how fast the population is growing.
Interest Rates – As interest rates drop, it becomes much easier for people to buy homes due to the lower costs. But as demand increases, prices increase as well.
Government Policies – The policies the government put in place have a huge impact on property value. The government can help increase demand for real estate by putting subsidies in place, or by giving tax credits.
Macro Economy – Certain economic measures help determine the value of real estate including employment percentage, Gross Domestic Product, and the price of goods.
2. Four Elements of Value
When you are trying to value real estate, it is important to consider the four elements of value. These elements consist of:
Scarcity – How much is available.
Transferability – How easy is it sell.
Utility – Does it satisfy the future owner’s needs/wants.
Demand – How many people want it.
Appraisals are an estimated value of certain property at a specific time. The goal is to determine the most appropriate price, also known as the market value.
The problem is, the market value does not always equal the market price. This could be due to several factors including a foreclosure.
Many people go off of the market value to determine a fair price for a property including:
- government agencies
- And mortgage companies
4. Methods For Finding Value
Sales Comparison – Very common for single-family homes. This method estimates value by comparing it to similar properties that were recently sold.
Cost Approach – Commonly used for properties that have built new buildings on their property. This method divides the buildings from the land and estimates them separately. The valuations are then added together for a total value.
Income Capitalization Approach – This approach is used for income-generating properties. It is used for investors looking for a rate of return on a certain property.
5. Different Types of Value
Market Value – The fair value that is placed on the property which is determined by the price similar properties have sold for.
Investment Value – The value from an investor’s standpoint. This is based on the investor’s calculated rate of return.
Liquidation Value – Always lower than the fair market value. This is based on if the property was foreclosed and sold at an auction.
Value In Use – This is used when a property has value outside of the property itself. For example, a vacation rental.
For More Information on Real Estate Valuation
After reading this you should have a basic understanding of real estate valuation. There is always more to learn and many resources available.
If you want to learn more about real estate, check out our blog!