04 best approaches to property valuation and why it is important

best approaches to property valuation

The idea of valuing property has been around for many years. In the past few decades, this process has gained more weight and become very complex with increased competition. Its competitors are real estate agents, commercial enterprises, and others. 

Taxes you need to know 

If the buyer intends to move out of her house, the home may be appraised at a premium. But at the end of the day, it can depreciate a bit faster than a new home sale. In addition to the home being sold, there are also several taxes that you need to pay on any equity. 

These are what you acquired from the sale of the home. The duty is normally determined as a level of the buy contract. If the seller doesn't make payments in time before moving out. Then the tax could change the amount of money. It is the amount the buyer paid as a deposit in the form of principal payment. In this situation, the seller wants to Sell the Property Quickly.

The house could also decline in value if something happens to it, such as fire, flooding, or earthquake. Or any other natural phenomenon that causes damage to it. However, the home still has to be appraised and all taxes will be paid. 


1. Income Approach

As mentioned above, the income approach is used when the value of a property is calculated using its rental rate. The lease rate is partitioned by the expense of leasing a room or loft. If you think about it, the rent rate is the amount that a landlord makes to provide a unit to residents. if you have an affordable unit then you make less rental in terms of your housing cost. The higher the per-unit rent or the more people you are renting for. However, this method is not good for low-income earners who cannot afford apartments.

But it is still a great option for those people with very little available time or resources. They only need their bedroom and bathroom a couple of times. But are not interested in changing their location. Nowadays, the income approach cannot be applied in most cases. 

It is also very inefficient in such scenarios where a large number of units is needed. You need a more spending plan to pay the lease per unit. In those situations, this approach would be best suited for small landlords. In this way, it is fitting to go for the immediate correlation approach. 

2. Value Per Gross Rent multiples

Value Per GGR products is among the famous valuation strategies. This approach is based on the actual rental or occupancy rates and other factors like size and location. For instance, suppose you have three units on two stories of a similar structure. And you keep increasing rents on each floor and calculate the total annual increase.

According to stats, the tenant pays $1.80/unit every month which gives us $2.00 in total revenue. Also, let’s say you have 20% vacant space. Let's say you see the tenants in the whole building have an average rent of $18.50/unit. It is after considering that the owner has an 80% lease. 

That means the owner gets 50% of his rent back from the tenants in the form of depreciation. It means rent will be reduced by half and the owner gets the remaining half. A simple way to calculate the Value Per Gross Rent is as below.

Value (per Unit) = Rent($1.80/unit) x Occupancy (20%)

So, now it is clear what the ‘value’ means. At first, we divide the monthly rent by the maximum possible occupancy rate on each floor. Then, we multiply the occupancy rate of each floor by two and divide it by 30. The resulting sum will give the exact net rent per unit.

3. Cost Approach

If you want to analyze the overall cost of the property then these two approaches are quite useful here. The income approach says “the unit is cheaper when the rent is paid” but it is not correct. You can get the full rent as well as the rent and some other expenses.

Also, there is no way to know how much you lost if someone decided to move out and the market prices will decline. On the other hand, direct evaluation has some advantages. Yes, this is easy to use but the result can vary every time. Another disadvantage is that it requires huge time and resources.

4. Value Per Doors (VPD)  Calculating the Total Cost of the Office Space!

There is another version called VPD with some modifications in our case. First, you need to estimate the square footage. Secondly, you need to do 3D calculations, which give approximate numbers from 2.5m^2 to around 7.5m^2. And you calculate the VPD of 30m².

Then you should add them all up and the result is VPD = Total Area * Revenue. To show in other words: if your office space is 2,500m². Then the VPD 30m² will be $2.5m²= $30m² / $2.8m² which is the value per door. There are many ways to measure VPD: floor area ratio, length to width, etc.


Importance of Valuing a property

The importance of valuing a small apartment home may vary depending on the buyer's needs. It includes various factors like the size of your family and what amenities you need for the place. If you have two children, the room could require extra furniture. If you are looking for something bigger, such as an office, the number of stairs might be a major factor in the cost. 

You can value your house according to your expectations and desires. It relies on how much improvement is needed in work to sell it or its location. Especially when you live in small-knit communities that have lots of houses but little time to market them. When you are planning to sell your property, some properties may be worth paying a higher price. And some that may not. To know more about what a property valuation is, read the entire post.

Some apartments are also worth a lot more or less than other homes depending on their location and amenities. For example, one floor upstairs of a duplex would likely command the highest price for an owner. while another floor below would command a lower price.

A larger home may also command a high price if it contains large rooms that can accommodate pets. like a basement or an upper level with an open kitchen. Or an upper level where a chef's kitchen and dining area are located. But a smaller house, a studio apartment, will go up on the roof with most owners. Even if someone is single and wants privacy. 

It may seem crazy for buyers to pay so much for a two-bedroom condo than for a small townhouse. That said, there are three types of houses, each one costing between $600,000 to $1 million. It is according to experts at Redfin to buy condos. A typical two-bedroom, midtown Manhattan condo is often priced at $1.3 million. while larger houses can come in many configurations and prices may go down up to around $9.1 million.

Hopefully, this post has given you some idea about the real estate evaluation. But there is always room for improvement. 

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