Calculating property value: how much is my home worth?
Most of a person’s assets are usually tied up in their home. Getting a professional property valuation can reduce the risk of selling a house or apartment below its market value. Comparis explains how a property’s value is calculated.
04.08.2022
iStock/wichayada suwanachun
1. How reliable are free online property appraisals?
One potential first step in the process of selling your home is to get an online valuation. You can get this kind of valuation via Comparis.
The price estimate is based on current property market information (based on actual selling prices), as well as the property’s location and description. It can give you a first sense of the property’s market value.
2. What method is used to calculate the property value?
Different valuation methods are used depending on the purpose and type of property. Specifically, the following three methods are often used:
Hedonic estimate: in this model, a property’s value is determined by comparing it to similar properties that have been sold. This is how the market value is derived from the hedonic estimate. This model is mainly suitable for standard types of owner-occupied property.
Capitalized income method/discounted cash flow (DCF) method: both of these methods are used to determine the value of investment properties. In this method, the future rental income is added up and deducted from the valuation data with a capitalization rate.
Intrinsic value method: the property’s overall value is based on the value of the land and the current value of the building on that land. The intrinsic value method does not take into account market criteria (except for land value). The intrinsic value may therefore differ from the market value. The intrinsic value method is often used for luxury properties, among others.
3. When is it a good idea to get a valuation?
For luxury properties, properties in need of renovation, properties with a high proportion of land, unique properties or historic buildings, it is advisable to work with a property expert to estimate the property’s value. In addition to the estimated value, the resulting written valuation also reflects the property’s structural substance.
4. What are the advantages of professional valuations?
Sellers often assess the current market situation inaccurately. Example: having to walk 15 minutes to the nearest bus stop is part of your everyday life. For potential buyers, this may be an argument against the purchase.
This results in price expectations that aren’t in line with the market. Setting too high a price can unnecessarily prolong the selling process. If you set your price too low, you may end up giving money away. With this is mind, it may be a good idea to consult an expert for property valuation.
Valuations require specialist expertise and access to the right software. Professional estate agents, real estate advisory companies and banks have the required set-up to put together property valuations. If the property is sold through an estate agent, the fee for the valuation is usually included in the commission.
5. Calculating a property’s value: what criteria come into play?
Several dozen criteria are used to estimate a home’s value, such as:
Regional property market
Regional labour market
Location and immediate surroundings
Access to public transport
Schools
Shops
Recreation zones
Density of the surrounding buildings
Facilities, e.g. car parking spaces
Year of construction
Living space and land
Floor plan
Standard of construction
Energy efficiency of the property
Potential regional price developments
This article was first published on 08.08.2019
