Before Selling to an Investor – Everything You Need to Know about Property Valuation
When it’s time to sell the family home, there are a variety of options available to sellers. One of the first decisions a seller will need to make is whether they want to go to the more traditional buyer route or go with an investor. No matter which direction you choose, knowing the value of your property is vital, which is why sellers need to understand the term property valuation.
What Is Property Valuation?
Property valuation is the process that determines the overall economic value of the real estate. Typically, property valuation seeks to determine the fair market value of a home or other piece of real estate.
When defining fair market value, it is the price that a given piece of property would reasonably sell for on an open market under the following conditions:
- Prospective buyers and sellers are reasonably knowledgeable about the property
- Both parties are participating in their own best interests
- Both parties are free of undue pressure to trade and unreasonable transaction periods
There are four elements that are generally taken into consideration when determining a property’s value, easily remembered thanks to the acronym DUST.
Demand, in this context, is defined as the overall magnitude of interest and buying power in the market for purchasing real estate.
Utility is then defined as the ability of the property to satisfy the use or need of the prospective purchasers.
In this context, scarcity is defined as the limited supply of real estate. This can apply to the style, size, and amenities included within the property as compared to other properties within the area.
Transferability is defined as the overall ease in which a given piece of property can legally be transferred to the buyer.
Why Is Property Valuation Important?
Property valuation is essential because it is used for several aspects of the selling and buying process. These endeavors can include:
- Sales listing
- Investment analysis
- Property Insurance, ext.
While all these are essential endeavors, typically, the most useful application of property valuation in real estate is to determine the asking or purchasing price of the property.
3 of the Most Common Property Valuation Methods
Also known as real estate appraisal, property valuation methods come in several forms and each one considers different pieces of information when it comes to determining the value of a piece of real estate.
1. The Sales Comparison Method
One of the most commonly used methods of property valuation is the sales comparison method. This method is used either exclusively or extensively for appraising residential real estate for the purpose of securing a mortgage.
Also known as the market data approach, this method compares the piece of real estate with others that have been recently sold in the area that have similar characteristics. This means that the comparable properties must be:
- Similar to the given property as possible.
- Have been sold within the last calendar year in an open, competitive market.
- Have been sold under standard market conditions.
Other factors will, of course, be taken into consideration such as the age and condition of properties, the specific location and other physical features of the property.
2. The Cost Approach
The cost approach considers two significant aspects:
- The value of the land
- The value of the property’s structures
The land value plus the net value of the structures on the property give the overall cost replacement valuation figure.
This method is really only used with unique properties, especially those that have multiple structures on the property, such as properties used for government buildings, schools and such—not your average residential property.
3. Income Capitalization Approach
This approach is also known more commonly as the income method and is based on the relationship between the overall rate of return an investor requires and the actual net income that a given property produces.
Again, this approach is generally taken for more unique properties, such as apartment complexes or other rental properties.
Looking for a Trusted Investor to Buy Your Home?
With all the scams out there, it can be hard to trust real estate investors when looking to sell your home. However, going that route can truly benefit sellers—so invest in someone you can trust.
We, at Problem Property Pals, ensure that we take the stress out of selling your home and make the process as simple as possible for sellers.
If you are ready to sell to a trusted investor and want a fair cash offer for your home now, fill out our form below or call Problem Property Pals at (267) 244-9163.