Property valuation requires a certain level of expertise. You can check for yourself that people having less experience is real estate tends to appraise a property based on its interiors and exteriors only. But, of course, this is what the real estate agency wants. However, with experience, and proper understanding of all the factors affecting the evaluation of the property comes into play and this is where you will get much more precise and near to accuracy property valuation. Yet it is not possible to accurately value one property.
This is so because each account for different factors and assigns different weightage based on their experience and understanding. So, can we say that property valuation is not uniform across the world? However, several techniques can help bring more accuracy.
5 ways to bring more accuracy in the property valuation techniques
Property valuation accuracy largely depends on the bias of the appraiser, and to reduce that bias it is advised that a greater number of valuers should assess a single property. As per a report on valuation accuracy released by the department of real estate of the national institute of Singapore, it is mentioned that higher the number of valuers for a single property, the mean value is more likely to approach the “true value”. Hence this is one way of addressing the accuracy situation. But you can also understand that investing so many resources into a single property is a waste of time and money. Therefore, we have researched some basic and innovative techniques to make the process easier and convenient:
- Comparable prices method: this is the most primitive of the valuation techniques where prices of other properties within the same locality are considered. Usually, the properties must be similar in characteristics, say floor area, structural design, location, and architecture.
- Comparable land valuation: this method is considered for a geographically wide area. Yet this technique yields a good value for small plots and properties. It takes into account the comparable prices of similar classified land. The appreciation of the land gives a hint about the property value for a brisk period.
- Straight-line method: this is the empirical approach to understand the scrap value of the property. In this technique, it is assumed that the property will lose value over the years and a constant amount is written off every year. So, here what you are trying to do as a valuer is to understand the value of the property if it has to be demolished, and based on that, you calculate the net operating income till the scrap date. This gives you the relative appreciation cost of the property which you can show to the clients.
- Declining balance method: declining balance approach or conveniently known as the constant percentage method follows a simple method where a constant percentage is deducted from the book value annually. The calculation is similar to that of compound interest and gives you factually accurate results.
- Multiple valuation methods: this is the most complex yet yields accurate results when you are trying to evaluate a property. It uses various approaches clubbed together taking in all the factors that may appreciate or depreciate the property value.
The latest trend in computer-aided valuations
Now, all the methods mentioned above are theoretical approaches that can be combined or solved manually. But none of them accounts for the volatility of the model with this dynamic world. This is where computer-aided models have come to help you. Many firms have developed various software and mobile apps with a build-up approach models on the basic ones to help you get a more precise and accurate value for the properties.
You just need to put in variables and the app will compute. However, the current trend is also set to change with the integration of AI and machine learning. This integration helps to keep data and past trends which also play a crucial role in determining the value of a property. This will also account for the seasonal variation and repetition cycle such that the results are more precise to the reality. Now, you don’t need to spend your time on solving equations and pressing calculators. Instead, you can now upgrade your skills to other quality aspects.