Estimating the value of real estate requires a variety of efforts, including financing, sales listings, investment analysis, property insurance, and taxation. However, for most people, determining the asking price or asking price of a property is the most useful application of real estate valuation. This article introduces the basic concepts and methods of real estate appraisal, especially related to sales.
Basic Valuation Concepts
Technically, the value of an asset is defined as the present value of future profits arising from ownership of the asset. Unlike many consumer goods that are consumed rapidly, the benefits of real estate are usually realized over a long period of time. Therefore, asset value estimates need to take into account government regulations or regulations and environmental conditions that can affect economic and social trends, as well as four factors of value.
- Demand: The desire or need for Supported by financial means to satisfy your desires.
- Utilities: Ability to meet future owners’ needs and needs.
- Rarity: Limited supply of competing real estate.
- Transferability: Ease of transfer of property
Value versus Cost and Price
Value is not always the same as cost or price. Cost refers to the actual cost. For example, materials and labor. Price, on the other hand, is the amount someone pays for something. Costs and prices can affect value, but they do not determine value. A house may sell for $ 150,000, but its value may be quite high or low. For example, if a new owner discovers a serious defect in the house, such as a defect in the foundation, the value of the house can be lower than the purchase price.
Market Value
An appraisal is an opinion or estimate of the value of a particular asset on a particular date. Appraisal reports are used by companies, government agencies, individuals, investors and mortgage lenders to make real estate transaction decisions. The purpose of the valuation is to determine the market value of the property. If we talk about market value of property in Lahore Pakistan then there are many housing societies are best for residential and investment purposes. Residential property is the need for any family. So, Park View City Lahore is a beautiful housing society in Lahore and the plot price is very low if we compare Park View City Lahore with neighborhood and present at prime location. 10 Marla Plot for Sale in Park View Lahore available at very handsome amount. This 10 Marla property can meet up your dreams as well as provide your family a modern life. Free free to call us if you are serious about this property. This is the price most likely a property will acquire in the highly competitive free market. The market price at which real estate is actually sold does not necessarily reflect the market value. For example, if the seller is under threat of foreclosure, or if there is self-sale, the property may be sold at a price below the market price.
Appraisal Methods
Accurate evaluation depends on systematic data collection. Specific data, including details of each property, as well as general data related to the country, region, city, or neighborhood in which the property is located are collected and analyzed to determine the value. The evaluation uses three basic approaches to determine the value of a property.
Method 1: Sales Comparison Approach
The transaction case comparison method is often used to evaluate single-family homes and parcels. Sometimes referred to as the market data approach, this is a valuation derived by comparing a property to recently sold properties with similar characteristics. These similar properties are said to be comparable, and each must meet the following conditions for a valid comparison:
- As close as possible to the affected property
- Sold in open and competitive markets within the last year
- Sold under normal market conditions
The evaluation process should use at least three or four comparison targets. The most important factors to consider when choosing an equivalent property are size, equivalent equipment, and perhaps the most important location, which can have a significant impact on the market value of a property.
Comparable’ Qualities
Since the two properties are not exactly the same, adjustments are made to comparable selling prices to reflect various features and other factors that affect value, such as:
- Building age and condition
- Sales date if there is an economic change between the sale date and the evaluation date of an equivalent product
- Sales terms
Example: When the seller of the property is compelled, or when the property is sold (at a discounted price) between relatives. •place. Prices for similar properties may vary from neighborhood to neighborhood.
- Physical features such as lot size, landscaping, construction style and quality, number and type of rooms, square feet of living space, hardwood floors, garages, kitchen upgrades, fireplaces, pools, central air conditioning.
Method 2: Cost Approach
You can use the cost approach to estimate the value of improved characteristics by one or more buildings. This method includes separate gratitude estimates for buildings and countries explaining amortization. Assembling estimates and calculate the value of the entire improved property. The cost approach enables assumption that reasonable buyers will not pay existing excellent property for existing excellent property, and cannot create comparable buildings.
This approach is useful if the assessed property is not frequently sold and is a type that does not achieve income. Construction costs can be estimated in a variety of ways, including the square foot method, which is the cost per square foot of a recently built equivalent property multiplied by the square foot of the building in question. Unit-in-place method. Costs are estimated based on construction costs per unit of measurement for individual building components, including labor and material costs. Quantitative research methods estimate the amount of raw material needed to replace the building in question, as well as the current price of the material and associated installation costs.
Depreciation
Depreciation is a condition that negatively impacts the value of an asset’s improvement. In fact, many investors use depreciation to their advantage. Quantity surveyors can provide investment properties with a tax depreciation schedule that involves losses due to depreciation of the assets and other costs like maintenance and repairs. This can then be used as a deductable for the life of the investment. For valuation purposes, depreciation takes into account the following:
- Physical deterioration including the following curable deterioration B. Painting, roof replacement, terminal deterioration,
- Economic obsolescence caused by external factors of assets, such as: B. Closeness to noisy airports or contaminated factories.
Methodology
- Land is not depreciated, so we use the transaction case comparison method to estimate the value of land as if it were underdeveloped and available for highest and best use.
- Estimate the current cost of building a building and improving the site.
- Estimate the depreciation amount of improvement due to deterioration, functional obsolescence, or economic obsolescence.
- Depreciation is deducted from the estimated construction cost.
Method 3: Income Capitalization Approach
Often referred to simply as the income approach, this method is based on the relationship between the rate of return an investor needs and the net income generated by the property. It is used to estimate the value of investment properties such as apartment buildings, office buildings and shopping malls. If the property in question can be expected to generate future income and its costs are predictable and constant, then an estimate using the income approach is fairly straightforward.
Direct Capitalization
When using the direct capitalization approach, reviewers perform the following steps:
- Estimate your total annual income.
- Consider vacancies and loss of rental income to determine the actual total
- Calculate annual net operating profit by subtracting annual operating expenses.
- Estimate the price a typical investor will pay for the income generated by each type and class of This is achieved by estimating the rate of return or capitalization rate.
- Apply the capitalization rate to the property’s annual net operating profit to get an estimate of the value of the property.
