property valuation, real estate appraisal or property valuation is the act of establishing an estimate of market value of a given property, for residential or commercial properties. Real estate deals frequently involve valuations because they happen infrequently and each property is different, unlike stocks, which are virtually the same and are traded frequently. Property valuation is a broad area encompassing several methods and a number of procedures.
The most commonly used valuation techniques in the real estate industry are:
Market Value: In this method, the value is determined after considering all the factors that can affect the cost of a property, such as the location, size, age and condition of the property, its current state, its neighborhood, its neighbors and other similar factors. The main idea behind this valuation method is to determine the value of the property in the absence of any market conditions. A market value is therefore the price of the property at the time of purchase and this price is usually less than the market price at the time of sale.
Market Value: Another popular method of property valuation used by real estate brokers is the replacement cost. This method basically deals with comparing the cost of two similar properties, and the difference between the two values is compared to make a determination on the current market value of the property. This method is generally applied in the case of condominiums or multiple unit buildings. The replacement cost is also used for properties that are considered to be of a low value.
Multiple Use Value: This method of property valuation refers to determining the value of a property according to the potential it has to create income in future. The process involves evaluating the different uses of the property, and the evaluation is done based on the market demand. The process is similar to the replacement cost method, but instead of comparing the value of two similar properties, this method compares the value of the property when it is used for different purposes. The property’s use depends on its use, whether it is residential or industrial, retail or other such use, and in some cases, it is used for its recreational purpose as well.
Other types of valuation methods include the market, average and multiple-use models of valuation, respectively. They all depend upon various criteria, including the location, size and condition of the property, the market demand and other factors, as well as the need of the market for the property. The most common uses of properties are: residential, commercial and industrial. When there is a demand for residential properties, the most common model of valuation is single-family dwelling valuation, while for commercial properties it is multi-family dwelling valuation. Both models of valuation deal with the different aspects of the property’s usage and determine the price after deducting the costs of depreciation from the selling price.