What is Building Valuation, and Why Does It Matters?
Building valuation is the process of estimating the current worth of a building. Knowing a property’s value is necessary before making any decisions about it. It helps in making the right decision about it. However, accurate building valuation isn’t a walk-in park but a multi-faceted problem.
For accurate valuation, the valuation should be done by experts. Handing your property to newbies can inflict severe financial damages. So, when it comes to property value, only trust seasoned professionals.
The valuation of a building helps in the following matters:
- Knowing the current market value
- Property Sales and Purchase
- Taxation
- Assessment of Monthly Rent
- Loan security before taking a loan
- Compulsory acquisition
- Salvage Value
What Factors Affect Building Valuation?
The significant factors and their significance in building valuation may vary due to market demands, user requirements, inflation, and many other reasons. However, some fundamental factors are universally accepted as prime movers of building valuation. They are:
1. Location
In real estate, location is the alpha and omega of building valuation. The first thing a valuer looks for in a property is its location. A property near a metro city, railway station, public school, and health facilities is worth multiple times more than rural land. Similarly, commercial locations are costlier than residential ones despite being smaller in area.
See the below chart on building valuation factors; the location has the most impact on the property value.
2. Property Condition
For valuation, it is vital to look at the physical appearance of a building. A property with a well-kept roof, flooring, driveway, rooms, and bathroom gets a higher value. Such properties are ready to live in; visitors are willing to pay a higher price after an initial inspection.
3. Curb Appeal
The curb appeal is the attractiveness a visitor feels while entering a house. A beautiful exterior look leaves a great first impression. It tells the valuer what to expect from the inside. And in most cases, it raises a property’s value. So, always pay special attention to the outlook.
4. Availability of Facilities
The availability of basic facilities like natural gas, electricity, sewerage system, and air conditioning is another major element of building valuation. These utilities make a house liveable. Sometimes houses in the countryside need more than these facilities, which decreases their market value.
5. Security
The importance of security cannot be overstated. Every human wants to live in a safe and peaceful environment. Buildings located in localities with high-crime ratios, political unrest, and any physical threat get a lower value.
So, these five factors make our list. However, when determining the right value of a particular property, one should always hire professionals. If you are a UAE resident, click here to approach Land Sterling, the region’s premier real estate solution provider with experience in more than 10,000 Projects.
See related: property valuation Dubai
What are the methods for a building valuation?
There are numerous methods for the right building valuation. However, these 3 are the most significant and widely used methods for building valuation.
Method 1 Sales Comparison Approach
In the sales comparison approach, the buyer compares the price of a house to similar houses sold in the same locality. This gives direct insight into the right price for the house. Buyers visit local real estate agents to determine the asset’s real value.
However, for this method to be effective, you should know which sales you are comparing. In real estate, valuations can change rapidly due to the construction of new roads, shopping malls, public schools, etc. Therefore, you can only use the latest available reference.
Method 2 Income Approach
The income approach method values an asset based on what income it can generate in the future. The investor calculates future rental returns based on the current value of a currency. It can be further divided into two major types; Direct Capitalization Approach and Yield Capitalization Approach. The direct capitalization approach calculates one year’s income, while the yield capitalization is based on incomes of multiple years.
The income approach is ideal for commercial properties.
Method 3 Cost Approach
The cost method values a property by determining how much it will cost to make an equivalent building. It includes the cost of land, construction, and installed facilities. The idea is to pay only what is necessary to build a new home of this size. It is useful for evaluating a newly built or a house with funky, stylish features.
Here is the summary of building valuation methods.
Final Words
Building valuation means determining the current monetary value of a property. It helps during property sale/purchase, taxation, insurance, compulsory acquisition, rent, and getting a mortgage.
The valuation of a property depends upon its location, physical appearance, installed facilities, utilities, security, and other factors. The general methods used are sales comparison, income, and cost approaches.
However, you should always consult a local professional for a specific property. Land Sterling provides real estate building valuations across UAE; contact us for the valuation of your property as per international standards.
