Property Valuations Darlington
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Home Valuations Darlington
There are lots of reasons why you may need a valuation for your property. It might be that you need to sell your existing home to facilitate a move to a new house. Perhaps you are thinking about some home improvements and want to see what difference they will make to the value. The valuation could be because of a divorce or debt settlement. Alternatively, it might be a valuation undertaken by the mortgage company to help judge whether they will lend against the property.
Perhaps you’re just plain curious as to how much the property is worth.
Whatever the reason, it’s worth knowing how your estate agent or surveyor arrives at their figures.
Methods of valuing property
There are five methods of property valuation that are generally recognised globally.
1. Comparative method
- Comparing the property with similar properties.
- For most residential homeowners this may be the only method you will experience.
The comparative method of valuation relies exactly on that – comparison. It involves comparing similar types of houses in a given area to judge the relative value of any particular one. This is the method most often used to achieve the Open Market Value.
In order for this to be truly effective, it is necessary to know the actual sales prices of the properties, rather than the more commonly published asking prices, however, an approximate valuation can still be achieved using the latter.
Another point to make when using the comparative method is that sometimes the prices achieved for a property may not actually represent its actual value. For example, a forced or pressurised sale in which a property is sold quickly can often undervalue a given property while similarly, a property owner who requires some of an adjoining field in order to build their dream extension may be prepared to pay a higher price thus overvaluing the property.
This should be borne in mind when utilising sales prices as comparisons, as on some occasions, the prices may be higher or lower than what the actual value of a property may be.
2. Investment method
- Uses discounted cash flow techniques to establish value through the incoming producing nature of the asset.
- This method is often used in commercial valuations, as well as HMO valuations.
3. Residual method
- This is used to establish the valuation of development sites.
- Uses the cost of developing the land and the final gross development value to assign a value for the land.
4. Profits method
- Used more as a valuation for business premises, such as hotels and cinemas.
If you cannot generate enough comparable information to reliably determine the value of a commercial property, or it is unsuitable in some way, then valuing the property using the profits method can be used to overcome these limitations.
To be able to use the profits method, however, the property itself must have an operational business currently running from within it. Commercial properties such as hotels, guest houses, pubs and cinemas are typical examples where the profits method of property valuation is suitable.
Even though the profits method is sometimes overshadowed by the comparable method, there are many property investors and valuation surveyors that prefer the profits based approach.
This is primarily because even if properties are very similar in appearance, size, quality of construction, and are in the same locality, there are still many factors that mean they may have differing profit generating characteristics.
5. Replacement cost method
- This is generally reserved for buildings with little comparable evidence, such as churches, schools, etc.
- The cost of the land and the cost to rebuild the structure are the basis of the valuation.
For some property developers, there will be a need to understand the Residual method of property valuation. For commercial investors and HMO investors, the Investment method will be applicable. For every other type of property investor, simply understanding the Comparative method will suffice.