Purchasing or investing in property is a process that is influenced by several factors. One such influential factor is the property worth estimate. The value of a property is more than just a number. It is a reflection of various intricate factors that impact the market value of property.
These factors help compare investment opportunities to make the best possible investment decisions for the investor. But what is real estate property valuation and why is it important? Here are the details.
What is Real Estate Valuation?
Real estate valuation, also known as property valuation, is a comprehensive process used to calculate valuation of property or real estate assets in aspects of their market value. This valuation is a crucial aspect of the real estate industry and is relied upon by various stakeholders, including buyers, sellers, banks, and investors. Moreover, it serves as a pivotal tool for insurance purposes.
During a real estate property valuation process, numerous factors are taken into consideration, encompassing the size of the property, its age and condition, location, future profits, and several other factors. Each of these elements plays a vital role in assessing the property worth estimate a little more accurately.
Why is Property Valuation Important?
Property valuation plays a crucial role in helping buyers and sellers alike. Online property valuation provides investors with important information like the appropriate prices for properties on the market and ensures fair transactions take place.
Moreover, banks conduct real estate property valuation, especially new house valuation to set loan amounts and mortgage terms based on property value. This ensures that the coverage costs are reasonable which prevents the risk of low insurance coverage. This process aids in assessing the market value of property while determining the appropriate rental price and evaluating the property’s rental potential.
All this is especially important in regard to calculating the value of immovable property as this not only aids in determining the market value of property but also resolves legal disputes that may occur in certain situations.
What Are the Factors That Affect Property Valuation?
Although various factors influence the real estate property valuation of a project, here are some significant ones that stand out:
Location of the Property
Beyond the finances, the location of a property is one of the first few factors that influence the market value of property. A real estate project based in a convenient and well-connected area is bound to have higher property value.
Moreover, the availability of amenities like Entertainment Centres, educational institutions, medical institutes or even local markets can lead to the appreciation of the property value.
Proximity to Infrastructural Development
Proximity to infrastructural facilities like major highways, metro or railway stations, bus terminals, or airports provides seamless connectivity within and outside the city. This influences the market value of a real estate project thanks to the convenience that it brings to travelling.
Proximity to Commercial Centres
Proximity to commercial centres and employment hubs attracts traffic to the property locations. This promotes development in the form of the construction of better roads or connections to major highways and the expansion of entertainment hubs in the area. This naturally appreciates the real estate property valuation of the area.
Purchasing Power
Locations in close proximity to commercial hubs and employment centres attract revenue and income for the population. With an increase in purchasing capacity, the expenditure in these zones increases, which in turn leads to an increase in the flow of money that enhances affordability. This further appreciates the market value of property.
Compact Availability of Land
It is common knowledge that the availability of land in urban areas is quite scarce. The demand for real estate, however, is not. Under the basic law of supply and demand, since the demand for real estate is higher than the availability of supply for it, the market value appreciates.
Luxury Real Estate
Properties that are equipped with high-end amenities and extravagant structures naturally have higher market value. Such projects are often built with upscale interiors and equipment for enhanced comfort and convenience.
Moreover, customisation too can lead to the appreciation of a property’s market value. Unlike standard amenities, projects developed with superior enhancements that are made to fit the preferences of specific investors bring about uniqueness and rarity to the property.
Process of Property Valuation
The owners must start the property valuation process by submitting documents like the title deed, property tax receipts, etc., to a certified property valuer or real estate appraiser.
After receiving the documents, the property valuer conducts a physical inspection of the property and checks the size, condition, layout, construction, etc., of the property. The valuer also checks the legal documents and verifies the information with the actual property.
Apart from the property’s physical attributes, the valuer also checks the location of the property, such as its proximity to markets, hospitals, offices, infrastructure, demand for real estate in the area, etc. These factors are essential as they affect the property’s price.
Based on the finding, the valuer files a property report, also known as property appraisal. The report includes their assessment of all the factors mentioned and highlights any shortcomings or strengths of the property.
One can also choose property valuation online. A lot of real estate agents and brokers offer online calculators that can help buyers and sellers calculate the property’s value from the comfort of their homes or offices.
Types of appraisal methods
A property can be evaluated by using several different methods. Some of these have been discussed below:
Comparative method
Under this method, the valuer compares similar types of properties, such as same-sized houses or houses within the same locality, to arrive at the market value of a property.
Profit method
The method assesses the profit-generating potential of a property. This method is not used for home valuation. Instead, it is commonly used for commercial properties like restaurants, shops, banquet halls, etc., and analyses the property’s working expenses with its gross revenue.
Residual method
The residual method is used when the property is being evaluated for future developmental purposes, such as redevelopment or renting/leasing. To calculate the property’s value, the real estate appraiser looks at factors like the building cost, development cost, profit, fees, etc.
Cost method
The cost method, also known as the contractor’s method, evaluates aspects like the construction cost of the property, the value of the land, and other similar factors, along with the depreciation cost of the property, to ascertain its actual price.
Investment method
The investment method is used to calculate the investment return for a property, such as from rent or sale. This method is mainly used when the purpose of purchase or sale is purely investment-based.
Benefits of property valuation
Here are some benefits of real estate valuation:
- Real estate valuation can offer an accurate estimate of the property’s value that can be essential for buyers, sellers, and lenders to make informed decisions about the property. An accurate property valuation helps buyers and sellers in price negotiations and allows them to choose the best deals for the concerned property.
- House valuation is essential for lenders when determining the value of the property. Lenders can decide whether to approve or reject a loan application. It can also help them determine the loan amount, interest, and other details.
- Insurance companies evaluate the property before offering insurance coverage. The insurance premium and sum assured are decided on the basis of the property’s value and income-generating abilities.
- Real estate valuation is critical for real estate investors. It offers them an accurate valuation to help them decide whether or not to purchase a property, how much to invest in a particular property, its potential for return, etc.
- Real estate valuation can play a critical role in legal disputes. In a dispute, property appraisals can be used as evidence in court.
- Property valuation can help owners with estate planning decisions and deciding the share of the property among beneficiaries.
Conclusion
Real estate valuation is a critical process that can help all stakeholders, including buyers, sellers, investors, lenders, and insurers. It allows one to calculate the market value of a property and use it for price negotiations, loan, investment, and insurance requirements, estate planning, and with legal disputes. One must consider its results before making any important decision related to real estate.
However, this process becomes easier when one chooses a reputable developer like Piramal Realty. While ensuring that all developments are of the highest calibre, Piramal Realty also offers customer-centric designs that are one of a kind.
Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim /disown any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.
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