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The Value of a Valuation

By David Gordon

There has been a great deal of confusion recently in the current, slow property market, with many home owners and investors wondering about the value of their property. Before you put your property on the market and if you’re serious about selling, it’s important to have a clear understanding of the factors that influence the value of your property.

To gain a better idea, it’s worthwhile taking a look at what a professional valuer looks for when inspecting a property and how they arrive at the valuation figure. Valuations are a professional opinion based on available evidence;valuersdo not set new benchmarks. They must be guided by what has sold recently, that is, within the past three to six months.

The valuation process starts with a physical inspection of the property. The valuer then employs three methods to further assess the property in order to come up with a value range.

Direct comparison:
This method involves researching recent sales of similar properties in the immediate surrounds, referred to as ‘comparable sales’. The subtle and not so subtle differences are taken into consideration to determine the extent to which these comparable sales can be used as a guide to the value of the subject property. In this way, apples are compared with apples and necessary adjustments can be made for the bruises.

Summation method:
This is the land value plus the depreciated value of improvements, which comprises the dwelling plus ancillary features such as garage, pergola and swimming pool. Land value takes into consideration size, shape, topography, slope, location and surrounding infrastructure and amenities. The value of improvements incorporates the style, age, architectural features, layout, number and purpose of rooms, and renovations in addition to the overall appearance and condition.

The combination of these two methods allows the valuer to arrive at a valuation range. It is then up to the skill and experience of the valuer to consider any risks associated with the property or its location to be able to refine the valuation figure.

Capitalising net income:
The valuer may also check these values by way of capitalising net income. This involves applying an investment yield to assessed market rental of the property to derive the current market value. This method is commonly used when valuing investment properties.

An independent valuation before you buy or sell a property can help you negotiate the best price, reduce your risk and save you money.

(extracts from an article first appearing on Property Observer)

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