Real estate valuation is an important aspect when trying to make certain investments. Knowing a property’s worth would guide you in making the best investment decision.
However, it is more than just knowing how much to buy or sell a property for, as value and price do not always mean the same thing. In this article, we would be looking at what real estate valuation is, why you actually need to value a property and the practical steps to doing so.
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What is Real Estate Valuation?
Real Estate valuation is the process of knowing the worth of a property. It involves assessing the property while looking at different factors in order to know the best market price to buy or sell a house for.
The different factors that affect the valuation of a property include the location, size, physical condition of the property and so on. For instance, a property located in an urban area would definitely cost more than one located in a rural or underdeveloped community.
Why You Need to Know the Value of Your Home
Although knowing the value of your home could be sometimes daunting as every home is uniquely located, designed and built, real estate valuation can help you to determine other factors such as budgeting, knowing how much to sell your house for or how much to buy if you’re just on the verge of becoming a homeowner.
Here are some reasons why you need to value of your home or any other property you intend to invest in;
- Real Estate valuation helps you determine how much you can reasonably buy a house for.
- It also helps you to know how much you expect the property to generate after a while. This is very important in the case of commercial real estate investment.
- Valuation is also needed if you require a loan to finance your investment. Your lender wants to know if the property is actually worth the price.
- It can also be used to determine the actual or replacement cost of a property and this is important when trying to get home insurance.
Steps to Determining the Value of a Property
Buyers, sellers, real estate agents, surveyors, licensed appraisers are all active participants in the process of real estate valuation. While there are professional steps taken by licensed appraisers, real estate agents and others can also engage less formal ways of valuing a home. Some methods that are used in real estate valuation include;
Comparative Market Analysis
This is done by comparing properties with similar features that have been sold in order to know the most likely price to place your property at. These properties however must be very similar to yours and have been sold recently within the same market under normal market conditions. Comparatives such as size, physical features location, age of property are to be considered here.
Another method used in valuing property in real estate is Cost Approach. It is used for properties that do not readily generate income such as churches, schools, hospitals and so on. It involves carrying out specific estimates for both the land and the property which is then added together to determine the value of the entire property.
This on the other hand is used for Investment properties in commercial real estate such as office buildings, shopping centers, apartment buildings and so on. It is done by comparing the expected investment returns as compared to the net income generated by the property.
Gross Income Multiplier
Gross Income Multiplier is basically used for rental properties. It compares the price of the property to how much income is expected from the rentals.
When trying to value any property in real estate, it is important to first determine if it is for residential or commercial real estate. This will guide the process and also help you make the most of any real estate investment platform you decide to go into.
MKH has a varying range of properties you can invest in with a guarantee of high returns. Our properties are strategically located and built to ensure you get your money’s worth. You can contact us by clicking here to get all the necessary information you need.