Step-by-Step Guide to Property Valuation Process | Market Value Determination

Property valuation is a process used to determine the current market value of a property.  This can be essential for various purposes such as selling, buying, refinancing, or obtaining a mortgage. 

Here’s a step-by-step guide on how property valuations are conducted:

1. Initial Preparation

Define the Purpose

Understand why you need the valuation (e.g., selling, buying, insurance, tax purposes).

Choose a Valuation Method

Market Approach: Compares the property to similar properties that have been sold recently.

Income Approach: Primarily used for rental or investment properties, focuses on the income the property generates.

Cost Approach: Calculates the cost to replace the property with a similar one.

2. Engaging a Professional Valuer

Selecting a Valuer

Choose a qualified and experienced valuer. In the UK, look for those accredited by the Royal Institution of Chartered Surveyors (RICS).

3. Inspection of the Property

External Inspection

Location: Assess the property’s location, neighborhood, and proximity to amenities like schools, shops, and public transport.

Land: Evaluate the size and layout of the land, landscaping, and any external structures like garages or sheds.

Condition: Look at the condition of the building’s exterior, including the roof, walls, windows, and doors.

Internal Inspection

Layout and Size: Measure the internal floor area and assess the layout of rooms.

Condition: Check the condition of the interior, including floors, walls, ceilings, and fixtures.

Upgrades and Features: Note any renovations, modern amenities, or unique features that could add value.

Utilities: Inspect the functionality and condition of electrical, plumbing, and heating systems.

4. Market Analysis

Comparable Sales

Research recent sales of similar properties in the area to provide a benchmark.

Adjust for differences in property size, condition, location, and features.

Current Market Conditions

Evaluate the current state of the housing market, including supply and demand, interest rates, and economic factors.

5. Documentation and Legal Considerations

Review of Legal Documents

Examine the property’s title deeds, ensuring there are no legal issues or encumbrances.

Check planning permissions and any restrictions or covenants on the property.

6. Valuation Calculation

Using Valuation Methods

Market Approach: Adjust the value based on the comparison with recent sales.

Income Approach: Calculate the potential rental income and apply a capitalisation rate to determine value.

Cost Approach: Estimate the cost to replace the property and adjust for depreciation.

7. Preparation of the Valuation Report

Content of the Report

Executive Summary: Overview of the property and valuation.

Property Description: Detailed description of the property’s features, condition, and location.

Market Analysis: Analysis of comparable sales and market conditions.

Valuation Methodology: Explanation of the methods used to determine the valuation.

Final Valuation: The determined market value, including any adjustments or special considerations.

Photographs and Plans: Visual documentation of the property.

8. Review and Presentation

Client Review

Present the valuation report to the client, explaining the findings and methodology.

Address any questions or concerns the client may have.

Key Considerations

Accuracy and Detail: A thorough and detailed inspection and analysis ensure the accuracy of the valuation.

Transparency: Clear explanation of how the value was derived helps build trust with the client.

Regular Updates: Market conditions change, so valuations should be updated periodically if needed for ongoing purposes like selling or refinancing.

Resources for Further Guidance

Royal Institution of Chartered Surveyors (RICS): http://www.rics.org

Homebuilding & Renovating: http://www.homebuilding.co.uk

Zoopla: http://www.zoopla.co.uk

By following these steps, property valuations can be conducted systematically and accurately, providing a reliable estimate of a property’s market value.