Establishing quite how much a home is worth is a complex and arbitrary process that is often heavily influenced by opinion and market forecast. Regarding sale usually only a chartered surveyor – hired as much for their impartiality as their expertise – can provide an accurate house valuation report. However, it is possible to calculate a relatively accurate figure independently. This involves analysis of comparable data – for example recent sale prices of similar nearby properties – as well as the more qualitative assessment of the features and qualities of the property itself. This guide will serve as an introduction into ascertaining an approximate figure for a home valuation, and examine where and how value can be accentuated.
Defining Home Value
The value of a property is determined by an endless number of variables, which is why house sale transactions often involve impartial agents to determine a reasonable fee. Of course, there’s no reason a person cannot grossly inflate the value of their property as they see fit. However the fact of the matter is that this will never yield a sale. Therefore, it’s necessary to remove any sense of pretension when performing a personal property valuation, as only then will it realistically fall into the market cycle of supply/demand.
Most property owners will keep slightly aware of the sale of properties similar/close to their own as this can provide a general idea of how much their property is worth. For example, if a street comprised identical residential homes and one is sold, unless it has significant interior improvements or other features that enhance it’s value beyond the norm, it’s likely to be of close value to neighbouring homes too.
However in truth, these transactions only serve as a snap-shot of that particular sale, carried out at a certain time by certain people under certain circumstances. Every property transaction is different, and so quickly can house prices change according to greater economic trends that even a few months can in truth be very out of date data.
This is why estate agents keep precise information on every transaction that occurs within their area of operations, as it helps to maintain as close as possible an up to date idea of how property valuations fluctuate.
This can present a more detailed and objective means of valuing a home but again is hampered by the change in market forces. Income analysis involves considering the property as if it were up for rent, and how much tenants could be expected to pay on a residential basis. It can be complicated to perform, but is carried out by all mortgage providers when considering an application so should be considered the ‘industry standard’ of property valuations.
The income analysis method looks to ascertain how much the property will appreciate in value based on historical trends, and how much equivalent rental income could be expected over the coming term. In this regard it is very individualistic and takes into account not just the bricks and mortar value of the home itself, but also, it’s worth to an individual (i.e., landlord). By determining a gross figure of projected rental income, this can then be calculated into the appreciation in value of the property over the coming term and consequently, the overall value of the home as it stands at the moment.
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Used often by insurance companies, this method imagines that the house is completely removed from the land and determines the value of the property by the cost of rebuilding it. While this may seem outlandish, it is the best means of determining value by location as the plot on which the home is built will vary enormously in value across the country.
In many cases the land on which the house is built is worth more than the actual structure itself, for example a plot of land in central London capable of taking a three bedroom house will be far more than the home itself, whereas in rural Pembrokeshire the opposite may well be the case. The ‘rebuilding’ element then values the cost of materials and labour as-per market forces, also accounting for a loss of value while the work is carried out.
This is the best system for people who live in high-value areas but with low-value properties, although will require access to the Land Registry, which can become expensive.
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