Property valuation is essential in the real estate industry. It gives an insight to the seller and the buyer about the approximate value of a house.
There are different ways to evaluate the net worth of a property. You can follow either a single method given below or combine them to find the most accurate figure.
Comparable sales method
The value of the property depends on the prices of similar apartments or houses in your neighborhood. It is also known as residential real estate valuation. How much you need to invest depends mostly on the present value of the properties. However, this is an old-school concept.
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Discounted value of rentals
Unlike the comparable sales method where the price of the property reduces in the presence of defects, the discounted value of rentals works differently. This method helps to understand the future rental appreciation of the apartments.
For example, consider the busiest place in your city. Properties in this location are more likely to have a high price, and the cost will be higher in the future. The discounted value of rental for this location is calculated after inspecting the growth in demand in the real estate of this location and also the availability of properties. It is the demand-supply relationship that determines the value of the property.
Automated valuations
This is the fastest way to evaluate the value of a property. It is a cost-effective method that uses computer-generated models. The automated valuation model considers the historical data indexed to predict and calculate the present value of the property. However, it does not consider the real comparison of the other properties in the same neighborhood. So, you may find different valuations for different apartments even though they are right beside one another.
Income approach
It is also known as the intrinsic or fundamental method of estimating real estate value. This approach focuses on the property value instead of comparing it with similar properties. Two factors determine the worth of the property you want to invest in: the projected future net income and the resale value of the apartment. This is a more realistic approach to find the real estate value estimation. When you consider how much the property value will increase, you get the approximate amount of maintaining its revenue.
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