Once you determine that you need a property valuation to find out the market value of your property, all you have to do is call a specialized company and a valuer will come when you’ll be available.
However, this is not an easy process, and the valuer must take into consideration many aspects. The transactions on the real estate market are infrequent and because of this, the prices for each property will be different, because in essence, each property is different.
As you surely have wondered how the valuers come up with the figures that they write in their report, our WA valuations company will tell you about the three approaches that can be used for determining the value of a property.
When the valuer chooses one type of approach, he or she has to take into consideration different aspects, like the type of value that is needed (as there is the market value, the investment value, the insurable value, the value in use, etc), the type of the property, the quantity and the quality of the available date and so on. As practice has proven, none of the approaches is considered better than the other, as every one can be used for determining the value of a property.
The Cost Approach
This was also called “summation approach” as it uses the summing value of the land and of the depreciated value for improvements. The last one is also abbreviated RCNL (which means reproduction/replacement cost new less depreciation). Reproduction means producing an exact, same replica and replacement costs mean the costs for building a house or another improvement with the same utility, with modern materials, workmanship and design. This is frequently used, but there is one exception – in the case of some insurance valuations, when it is needed the value for an exact replica of the building to be covered by the insurance policy.
However, this approach is now considered reliable when it’s used for new structures, while for older properties it tends to become obsolete.
The Sale Comparison Approach
This comparison uses the substitution principle. This comparison uses the principle that an individual who is prudent will not pay more money for a property (house or condominium) than it would cost him to buy a similar, comparable property. This means that the approach is based on the fact that the buyer will compare the asking prices and he will look out to get the property, which is adequate for his/her needs, at the lowest price/cost.
For this comparison, many data is needed. The valuer will collect the prices of selling for similar properties, which were actually sold, not still on the market. This information can be taken only from reliable sources that can be demonstrated – pubic records, real estate publications, sellers, buyers, etc.
The Income Approach
This approach is mostly used to determine the value of investment and commercial properties. This is the approach that intends to model or reflect directly the behaviors and expectations of the typical real estate market participants. Because of this, the process is considered applicable for those properties that produce income, if there is enough available data.
This approach is used for example in those cases when a person wants to become (or is) a real estate investor and wants to know what is the investment value for that exact property. This means that the approach will capitalize the income stream into an indication of value.
Don’t worry if all seems to overwhelming, because all these are just small insights into the work of a property valuer. There are other things that you have to pay attention to, and this surely is not one of them.