Property valuation, real estate Appraisal or land valuation is the process of evaluation of Real property value. This estimates of a home’s worth based upon current market conditions. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate trades vary infrequently.
Buyer’s rely on appraisals to determine if they are paying the right price for their property and sellers rely on them to determine the market value of their home when they need to refinance to a lower interest rate, or they want to know what a buyer may be willing to pay for the home when they go to sell it.
Three approaches to property valuation
There are three general groups of methodologies for determining value. These are usually referred to as the "three approaches to value" which are generally independent of each other:
1. The cost approach - used when properties are new or newly renovated
2. The sales comparison approach - most common method used to establish value of a resale, existing property or refinance.
3. The income approach- used when the property's principal value is dependent on its ability to provide current market rents.
The appraiser must decide which of these values provides the most accurate representation of value for the subject property. The estimated market value should never be an average of the three approaches. Each is a unique demonstration of value based on a specific use or circumstance. The appraiser must select one or more of the value approaches and base the market value on that figure.
5 facts that mainly influence property valuations in India:
- Infrastructure development in the surrounding area is most important factor that influences the property valuations. This development can be in the form of Roads, Airport, Bus Terminals, Malls etc. Infrastructure development in the form of easy transportation through Metro Train also plays an important role.
-. Commercial real estate development in the like Offices and SEZs also play a key role. With busy office lives, people prefer staying close to their workplace to save on time.
- Quantum of disposable income in the hands of public is a key factor. It has been observed that neighborhood that came around IT hubs have superior valuation compared to manufacturing or agricultural hubs. This can be directly related to the disposable income.
-. Availability of land drives property valuation. Areas were large amount of land is available for residential purposes tend to appreciate slowly compared to areas where land in a scarce resource.
-. Connectivity is another key factor. Areas that are well connected with business and entertainment hubs of the city enjoy higher valuation compared to areas that are not.