Property Valuation is the process of estimating the value of real estate property is done by various methods as illustrated below.
1: Comparable property method:
The average value of rate per unit area at which similar properties in the neighborhood were sold at is multiplied by the actual area of the current property. Adjustments to the calculated value are made to account for specific defects or advantages in the property under consideration.
2. Discounted value of rentals:
The future rental earning capacity of the property is projected based on a detailed study of the growth of demand for real estate in the neighborhood as well as the potential supply of properties in the location to project likely capital and rental appreciation of the property.
These future cash flows are discounted to the present at the current interest rate. This gives an estimate of the economic value of the property.
Most real estate valuators also estimate the remaining life of the building based on structural strength of the building design, materials used and age of the property. In addition most valuators will also check whether the Title of the property is clear and not under any litigation.
Why is it required?
Many Home Finance Companies require that the an approved valuator not only appraised the value of the property but also establishes beyond doubt the ownership of the property as the security of the loan is often against this property.
Further the remaining life of the property is also estimated, as the loan must not have expired before this remaining life.
Many corporate clients also require you to posses the seal of approval from an established valuator (very often government approved) to establish the property value and title clearance