Property valuation is the process of determining the worth of a piece of property. This worth is often defined in monetary value. However, the value of the property and the actual cost of the property are not always the same number and can vary depending on many factors.
Methods Of Property Valuation
There are several different ways to perform a property valuation. Each of these methods focuses on different aspects of the property and their relation to the current market.
The cost method of property valuation focuses on how much money it would cost to rebuild an entire piece of property from the ground up. Also known as the replacement cost method, this method is often used if it’s too difficult to get a reasonable value on the property by comparing it with another.
This method is used by calculating the combined cost of aspects such as materials used to construct the property, the price of labor, and even the price of the land that the property is on. By adding up these costs, you can get a reasonable idea of what the value of a property would be.
#2: Sales Comparison Method
The sales comparison method of property valuation is commonly used today, especially if a property has others similar to it nearby. Similar properties that are close in proximity are called “comparison” properties, or simply “comps.”
This method is fairly simple: by looking at recently sold comparison properties, you can determine the value of the property in question.
#3: Income Capitalization Method
The income capitalization method of property valuation looks primarily at the property’s ability to generate income for its owner. This stream of income is used by the broker to find some sort of indication of market value. Once found, a property valuation can be created.
This method is unique in that it can only be used for property that has the ability to generate income, such as office buildings and apartment complexes. Therefore, it wouldn’t be used to determine the value of a single-family home.
The value per door method of property valuation sees the overall value of the property determined partly by the number of units it has. This method utilizes an equation to find the value of the property: the sales price divided by the number of units in the property. This results in the “value per door” number.
Value per door is best utilized when a property is filled with units that are roughly the same in their overall design and square footage. Examples include apartment complexes, hotels, and office buildings. This overall equality in the property helps the broker obtain a more accurate value per door number.
Value Your Property Correctly with Commercial Realty Solutions
Proper property valuation is imperative for a good deal. Getting an accurate idea of how current market conditions affect the value of your property is the first step toward making a profitable sale.
Not only that, but property valuation, when done right, works to ensure that both the buyer and seller are getting a fair deal. For more information on property valuation, contact Commercial Realty Solutions today.