How to Determine Property Value
Published on: 09 Jun 2024
Whether you are buying or selling property, the first step is always the correct value-based assessment of your home. While there are many ways to evaluate the actual market price of your home, there are a few methods that are the most reliable. In this article, we elaborate on some of these methods that will help you to reach a quick & near accurate assessment.
1. Sales Comparison Approach (SCA)
One of the commonly used methods to assess the value of homes & land in India, this approach compares one property to recently sold similar properties in the same market & with similar characteristics. The method derives value by analysing “comparables” under the following conditions:
1. Similar to the subject property
2. Have been sold recently in a competitive market
3. Have been sold under usual/typical market conditions
4. Matching features like size & location of both properties
The qualities of both properties in comparison are:
1. Age & condition of buildings
2. Terms & conditions of sale
3. Location (as price differs in every neighbourhood)
4. Physical attributes of property (quality of construction, number of rooms, open areas, sq. ft. of living space, built-up, amenities, etc.)
5. The present condition of the home
Considering the above is sure to give an idea about the market value estimate of your property.
2. Cost Approach
This approach is used for properties that have been re-developed or improved by new buildings and evaluates the value of the building & the land separately by considering depreciation. Both the estimates are added together to calculate the present value of the improved property. This approach is practical for a property type that is not sold frequently & does not generate income. (Eg - schools, churches, hospitals, etc.). While assessing the depreciation, one must consider the following factors:
1. Physical deterioration
2. Loss of property value due to obsolete features
3. Economic factors that depreciate value (e.g., proximity to a noisy location or polluting factory)
Using the above method will bring you to the closest estimate of building & land value.
3. Income Capitalisation Approach
This approach evaluates the relationship between the rate of return expected by the investor and the net income a property can generate. Shopping centers, offices and apartment complexes are often estimated using this method. Appraisals are relatively easy to make when the subject property is expected to generate income in the future & when its expenses are predictable & steady. While opting for this approach, perform the following steps:
1. Estimate the annual income (potential)
2. Deduct annual expenses to calculate net yearly income
3. Estimate rate of return
4. Apply the capitalization rate to the annual income to get an estimate of the property’s value
4. Component Approach
Under this method, the value of the land and the value of the building can be assessed separately & added to get the final estimate.
1. Assessing land price - Built-up, properties in the locality, plot coverage, and floor area can help estimate land value. Help from local development authorities can also be taken into account.
2. Assessing building cost - The value of a building can be arrived at using:
Total cost = Value of building + value of Plot
Total cost = Total area x 10% of reproduction cost + value of plot
The next time you are unsure about how to know the fair market value of your home, use the methods above. If these do not apply to your property or real estate needs, it is always advisable to employ the services of a known real estate consultant.
Are you still confused about property buying? Get the best of real estate knowledge & property listings with EstateMint. Get in touch with us today!
Comments Add Comment
EstateMint is one of the leading Real Estate, and finance consulting firm having its operations in Pune. EstateMint’s strength is based on years of expertise in Real Estate and Digital Marketing with their cutting edge technology platforms and research tools which deliver the rich knowledge in the field of Real Estate and empower customers to make informed decisions.
© Ceyone Technologies LLP 2023.
All rights reserved.
Ceyone Technologies LLP RERA Registration Number: A52100012743
Search, Compare, Buy!
Don’t have an account?
Search, Compare, Buy!
EstateMint, Office No. 301 & 302, Sanghvi Upsurge, Old Mumbai Road, near B. U. Bhandari Mercedes Benz Showroom, Baner, Pune, Maharashtra 411045
FOLLOW US ON
Are you sure you want to clear the comparison?
