Property Valuation Methods as per RICS Norm

Contrary to popular belief, most estate agents do not routinely conduct a detailed home
valuation. They indicate, or suggest, an appropriate sale or rental price for the marketing of
your home. However, when youre selling a property, estate agents are often in the best
position to gauge how much your property can, or should, sell for. Some larger estate
agents will have experienced valuers, working to a code created by the Royal Institution of
Chartered Surveyors (RICS). The code is based on the following criteria:

The age and type of property

The accommodation available
The fixtures and features of a property
The propertys construction and state of repair
The position within the locality and the surrounding amenities available
The tenure, tenancies, services charges or any other liabilities.

Consider getting a more detailed house valuation and check what kind of valuation your
local estate agents are able to provide. Estate agents will factor in a market value, which
incorporates the strength of the local market, demand and supply forces and the sale or
rental price of other similar properties (comparables) in the local area. Remember, all
estate agents are providing you with a valuation for free in order to try and win your
instruction, which is why it is recommended you obtain three valuations. Everyone wants
to maximize the sale value of their property, but an over-priced property may be difficult
to sell, particularly if youre in a hurry to move.

It is also sensible to search for property for sale in your area to see what prices similar
properties are being sold for. You can also read more about choosing an estate agent to sell
your house.

However you decide to conduct your valuation, its important that it is as accurate as
possible. Most buyers request an independent valuation of a property they wish to buy,
usually conducted by a chartered surveyor at the same time as the survey is carried out.
They will therefore know if a property has been over-priced and this may influence their
decision to follow through with the purchase, or to reconsider their offer price.

Valuation techniques
There are a number of techniques that are used when assessing the value of a property.
These include the Comparable Sales Method, the Income Method and the Cost
Approach.
 1. The Comparable Sales Method

This method is one of the more common techniques used in estimating the value of
property for sale and is based on the prices of similar properties that have been sold in the
local area. It is also sometimes referred to as the Inferred Analysis. The principle of this
method is that the value of a property is based upon what it is likely to sell for. This
method therefore incorporates relevant market conditions and activity within a particular
location.

A wealth of comparable property data is collated and characteristics, such as details of

recent transactions and features of the property, are analyzed. These include:

The date of the transactions

How the property was paid for
How fast the transactions were
The property size
The condition of the property
The location
Building regulations, etc.

Once the data has been analysed, an appropriate price range can be attributed to your
property, with properties most similar to yours getting a higher weighting in the analysis.
You can search for properties sold in England and Wales right now on Primelocation.com
and this will provide you with a basic indication of how much properties like yours have
sold for in your area. This service is absolutely free for Primelocation.com registered users
and can provide invaluable information if you are looking to achieve the best possible price
for your property.

2. The Income Method

This technique is different from other methods, as it focuses on the intrinsic value of a
house or flat to an individual. The principle is based upon understanding the current value
of the property by assessing the future potential income of the investment (if the property
is to be let, for example) or its potential re-sale value. As an example, if a buyer was
thinking about buying a property to let, they would use this method to understand how
much annual rental income they might expect from the property over the next few years
and also how much the propertys value might appreciate over the next few years in order
to assess its value to them.
 3. The Cost Approach

The Cost Approach to valuations looks at the replacement value of the property by
understanding the cost of all the relevant components, such as the property itself and the
land. Essentially, the principle lies in calculating the value of the land without the building
in a free market, establishing the cost of reconstructing the property on the land and then
deducting the value of depreciation that has occurred to the building in question.
The most common approaches to property valuations tend to utilise a combination of the
Comparable Sales Method and the Income Method.

4. Valuation price versus value

Regardless of the valuation price you arrive at for your property, it will only be worth what
a buyer is prepared to pay for it. If, for example, your property or road is highly sought
after, in a market where demand is strong and supply is weak, you may find buyers are
prepared to pay more than the marketed price to secure the property. Similarly, in a weaker
market and in a less sought-after area, the opposite is likely to occur.

Valuations, however you obtain them, will only ever be a guide to how much your property
might eventually sell or be let for. It is advisable, however, to use the professionals to value
your property to maximize your chances of getting the very best price. Find an estate
agent now on Primelocation.com.

The content provided in the Primelocation.com guides is for information only. In all cases,
independent and professional advice should be sought before buying, selling, letting or
renting property, or buying financial services products.

Property Valuation Methods for Apartments

In India the property valuation methods and property valuation process depends on the
location of the property, the quality of construction, maintenance of the property,
proximity to major infrastructure developments and more. Safety and security of the
apartment is another factor which is closely looked upon in the present times. A
property located in or near the riot prone area has lower rates, even if it is in the best of
location and filled with all the modern conveniences and amenities. Good connectivity of
the property with the bus depot, railway station and airport adds the face value of the
apartment or house. Following are important property valuation methods.
1. The Investment Method: The investment method of valuation is directly
related to its income producing power. This method is a practical and discreet
one, extending a fair view of the value of the property. It involves converting a
propertys income flow (rent) into an appropriate capital sum. Based on
discounted cash flow method, it takes into account the future cash flows that the
real property can bring to the investor.
2. The Comparison (or Comparative) Method: This method is best for
residential property or purchase of property not usually for investment purposes
but for occupation by the owner. In this method, the latest sales figure of
property in the market is devised. It takes into account of latest sales figure and
comparative values. Based on the comparative values, it derives capital values for
properties and rental yield.
3. The Residual Method: This method is used when a property has potential for
development or redevelopment. Residual valuations for property are regularly
made by people who purchase residential properties that they believe could be
made more valuable if money were spent on improvements and modernization.
This method is generally applicable in development projects.
4. The Contractors Method: The Cost Method /Contractors Method of valuation
of property assumes that a prospective purchaser would be prepared to pay the
same amount for the premises as it would cost him or her to purchase a similar
property elsewhere. What is required is not the cost of an exact duplicate of the
existing building, but the cost of providing the same accommodation in a similar
form using up-to-date construction techniques. It is generally used in rating all
the compulsory purchases.
5. The Profits Method: For certain types of property, capital value is estimated
from the amount of trade or business conducted at the property. In these cases,
the profits method is used to take the gross earnings and then deduct the
working expenses, which are interest on the capital provided by the tenant and
an amount for the tenants risk and enterprise. The remaining balance is the
amount that can be paid in rent.
Valuation Report is prepared by expert valuers

The valuation report for a property is prepared by expert valuers. If you are obtaining a
mortgage, your lender will require a valuation by one of his panel surveyors, to ensure that
if the mortgage is unpaid the outstanding amount will be covered. The estimated value of
property is only valid as of a given date or period of time, since the market conditions, the
investment climate and other factors change frequently.

Valuations are also required during for tax purposes and probate. Wealth tax is to be paid
by property owners owning property above a certain value. The valuation report for a
property is prepared by chartered surveyor and they offer impartial, specialist advice on a
variety of property related issues and the services which they provide are diverse. A
chartered surveyor is an expert in the value of property who has wide experience in
and knowledge of the property market.

Sometimes, the statute (Law) lays down the methodology to be followed in arriving
at the value. In such cases, the valuation report should be prepared taking into account
the methodology. For example, for wealth tax purpose, the Wealth Tax Act specifies the
procedure to be followed in arriving at the value of a property. The main assumptions and
basis for arriving at the value of a property should be clearly mentioned.

Disclaimer: The article contains data collected from various sources and the use of same is at readers
discretion.

Prepared by: Dr. Sarbesh Mishra

Associate Professor, Finance Area
NICMARs CISC, Hyderabad.