Valuation of residential property

What is a residential property?

All land and buildings meant for private occupancy, whether permanently or only temporarily, are referred to as residential property. More than one owner may exist for a residential property. 

What does residential property valuation include? 

A property valuation should take into account a few key factors to accurately determine the genuine value of the property. The following facts about the property will be taken into account by a valuation to precisely establish its value, regardless of whether it is a residential, industrial or commercial property. 

• Neighbourhood comps

This is the act of comparing the sales prices of recently sold residential properties in your neighbourhood. In this process, make sure that the properties:

- have recently been sold, 
- that they have certain features that a similar to yours,
- and that they are in the same location as your residential property.

• Location

Using location as a factor, these are very important in the valuing of your residential property:

- quality of schools, 
- employment opportunities, 
- proximity to shopping, 
- entertainment, 
- and recreational centres in the location of your residential property.

• Land or Home size and usable space

Size is an important element to include, since a bigger property can positively impact its valuation. The value of a home is roughly estimated by the price per square foot. For example; say a 2000-square-foot house sold for £200,000, the price per square foot would be £100.

Additionally, usable spaces like garages, basements, attics, etc, which are not counted in livable square footage can add value to your residential property. 

• Age and Condition

Newer residential properties will typically have a higher value. This is because critical parts of the property like a house, plumbing, electrical, roof, and appliances are newer and possess fewer threats of breaking down. Notwithstanding, they generate savings for the buyer.

• The local market 

The number of buyers in the market can impact your home value, even though these listed conditions don’t matter:

- the excellent condition, 
- in the best location, 
- with premium upgrades, 
- the number of properties for sale in your area. 

A market with fewer buyers but many homes on the market is referred to as a buyer’s market while a market with a lot of buyers competing for fewer homes is a seller’s market.

• Characteristics of the property 

A property's suitability for the purpose for which it was built will be examined as part of the valuation. A residential property’s design should sufficiently provide a safe and comfortable environment for inhabitants.

Residential Valuation Report

A property value report contains all the information about the property that has been thoroughly analysed.

The valuation report includes information about the:

• property, 
• including its owner, 
• appraisal, 
• and other relevant characteristics. 

This report was created following a thorough examination of the building's design, construction, and layout. The information listed below should be included in the property appraisal report:

• The applicants' names.
• The owner's name.
• The property's address - The date of the valuation or appraisal
• The objective or basis for value.
• Property kind.
• Location and property structure
• The surrounding area and amenities
• Property specifics - Number of storeys, rooms, and bathrooms.
• The state of the building.
• The need for property improvements.
• Previous years' renovations.
• The property's age and anticipated future life.
• The property's level of upkeep - The presence of a front yard, backyard, and garage.
• The property's fair market value was determined.
• Detailed images of the property in colour.

How to get a residential property valuation?

Getting a valuation on your residential property should be an easy ride. This can be conducted by investors or by licensed professional appraisers or real estate brokers by using specific data on the property and the market. 

How to value a residential property?

There are several ways to value your residential property and here in this article we will talk about a few of them. 

• Sales comparison approach (SCA)

The analysis of similar sales, contract sales, and listings of properties that are the most comparable to the subject property make up the sales comparison method to valuation.

All elements that affect value must be taken into account in the appraiser's evaluation of the investment property. To find any significant discrepancies or points of comparison that might have an impact on his or her estimate of valuation for the subject property, the appraiser must examine all closed sales, contract sales, and offerings or listings of properties that are the most comparable to the subject property.

This is crucial in markets that are shifting (in terms of rising or falling values). In any market, analysing closed sales, contract sales, and offers or listings is crucial and will lead to more accurate reporting on market conditions, including trends showing that asking prices for current offerings or listings and sale prices for contract sales have changed.

• Each comparable sale's data and verification source(s) must be listed on the appraisal report form. 
• A multiple listing service, deed records, tax records, real estate brokers, builders, appraisers, appraisers' files, and other third-party sources and vendors are a few examples of data sources. 
• Avoid using general terms like "public records" and instead identify the precise data source (such as tax records or deed records). The source(s) of the data must be trustworthy sources for the region in which the subject property is situated.
• Examples of sources for verification include, but are not limited to, the buyer, seller, listing agent, selling agent, and, in some circumstances, closing documents. 
• No matter the source(s) employed, there must be enough information to comprehend the terms of the sale, the availability of financing concessions, the physical attributes of the subject property, and if it was an arms-length transaction.

• Property Valuation Calculator

There are 2 widely used approaches that can enable you to calculate the value of your property; namely the Cost approach and the Income capitalisation approach.

• Cost Approach/ Price Approach

This method values a property according to how much it would have cost to build it in five steps. It is used by valuers to appraise special-purpose buildings or more recent structures when the cost to create or replace the structure is most pertinent.

• Step 1: Calculate the land's worth as if it were unoccupied and available for the best use possible.
• Step 2: Find out how much it currently costs to build the building and all of its improvements.
• Step 3: Calculate any depreciation that has accumulated due to the property's present physical state, deterioration, and obsolescence.
• Step 4: Subtract incurred depreciation(step 3) from the most recent building cost (step 2).
• Step 5: To determine the overall property value, add the land value (step 1) and the depreciated cost (step 4) together. (For example, Value = Land + Construction Cost - Depreciation).

• Income capitalisation approach

The five steps of the income approach are used to value properties that generate revenue, such as an office or apartment buildings:

• Determine the probable annual gross income. It is based on market rates as opposed to existing revenue (i.e., if an office building has a tenant paying below-market rent, you would use a potential gross income higher than in place).
• To determine effective gross income, deduct vacancy and additional possible losses.
• To calculate the annual net operating income, determine operational costs (NOI).
• Calculate what a typical investor would pay for the revenue generated by this kind and class of property. The capitalization (or cap) rate, which is the rate of return, is calculated by dividing the NOI of the comparable companies by their sales prices. A 10% cap rate, for instance, would apply to a comparable property that sold for £100,000 with a £10,000 NOI.
• Calculate the relevant property's market cap rate. As a result, to arrive at a valuation of £150,000 if the subject property was producing £15,000 in NOI, you would divide the NOI by the cap rate (0.1).

Understanding these salient points will assist you with the valuation of residential property:

• Utilising the use of online tools to help in the valuation process could be one of the simplest and easy ways to value your residential property. It is mostly free and does not require the hiring of professionals, even though their opinion matters.
• Make sure to leave no stone unturned when valuing your residential property. Every nitty-gritty fact about your property from the swimming pools, basement, garage, number of rooms, and bathroom to even the surface area of the rooms is very important to help value your property
• Seek the advice of professionals as they could present a clear insight into how things are run when valuing residential properties.
• The local market of your residential property is highly important in its valuation. Your location, the excellent condition of your house, and the premium upgrades of your residential property can be irrelevant in deciding the value of a residential property if the market does not favour the seller.