If you are looking to sell your property, assessing its value is one of the central tasks you will have to perform. Your asking price will be based on market prices and calculations of financial profitability. A good valuation, however, is not simply your estate agent telling you he could sell your house for far more cash than the Smiths down the road got for theirs. Appraising the value of a property is a complex issue where many factors have to be taken into account – it is a combination of art and science.
Independent property valuations are only performed by chartered surveyors. It is a common misconception that Estate Agents value your property for you. Agents simply guide you to a suggested asking price – they cannot be relied upon to provide objective and accurate valuations.
The asking price an Estate Agent recommends is often over-inflated because of their desire to appease the seller in order to win an instruction. On the other hand Estate Agents may encourage a seller to accept a below-market offer in order to secure a quick sale (a high turnover is much more profitable for an agent than a marginal increase in the selling price). Since you cannot be sure of your Agent’s motives, it is generally recommended that you perform an independent valuation.
It is perfectly possible for non-professionals to do their own valuations.
Unfortunately, a thorough understanding of valuation theory and methodology is not commonplace. There has been little comprehensive literature available as to what constitutes value and what the different methods of determining the worth of a property are. The following article will provide some insight into theoretical approaches to value and valuation methodology.
There are two main theoretical approaches to determining the value of a house, namely the“Comparable Sales Method” and the “Income Approach”. A third method, the “Cost Approach”, will be discussed briefly, but as it is not an autonomous approach, emphasis will be put on the first two methods. The first valuation method focuses on actual market data, whereas the second calculates the profitability of the investment. Since the two approaches complement each other, a diligent valuation will always have to use both.
Value is, of course, a subjective rather than an objective term. If a buyer favours a detached house with garden somewhere in the Cornish countryside, your two-bedroom apartment in central London is of little value to him. Even small features like the size of windows are worth more or less to different people. The forces influencing the value of property include the property features and its location, social institutions in the area, wage levels, tax codes, and also building zones and environmental legislation. It does make a difference whether a flat is in Sheffield or Swindon, whether the next good school is two or ten miles away, and whether it is a 12 th floor flat with view of St. Paul’s or a basement flat with view of by-passers’ footwear.
The appraisal methods discussed below are theoretical approaches to the question of value and help you estimate the worth of your property in accordance with overall market trends and your personal investment calculations. In practice, however, it is the free market, i.e. the forces of supply and demand, which decide what amount of money a house changes hands for.
There may be a substantial gap between subjective valuations and the fluctuations of the free market. Thus, the subjective value of a property does not always correspond to its actual price. The forces of supply and demand cannot be scientifically predicted. You may just be so lucky as to be approached by someone, three days after you put up the “For Sale” sign, who is in desperate need of a property like yours and possesses the necessary funds to pay the price you are asking for. Or there are so many similar houses on the market that you are forced to cut the asking price by 10% because you still have not found a buyer after one month. Every property valuation can only ever be a guideline to what your house will eventually change hands for.