Property Valuation

Valuations are needed when properties are bought and sold, mortgaged, insured, taxed, included in company or fund accounts, or divided in divorces and inheritances.

Valuers use several main methods. The comparison method looks at the prices of similar properties sold recently nearby. The income method values a property based on the rent it produces, often using a capitalization rate. The cost method estimates the cost of buying the land and rebuilding the property, less depreciation. The residual method, used for development sites, subtracts the costs of development and profit from the expected value of the finished property.

For example, a lender’s valuer might value a house at 350,000 based on recent sales of similar houses on the same street, adjusted for differences in size and condition.

Valuations are estimates, not guarantees of price. They can differ between valuers and can lag behind fast-changing markets. Professional bodies, such as the Royal Institution of Chartered Surveyors, set standards for valuers. A mortgage valuation is mainly for the lender and is not the same as a full survey of a property’s condition.