Real estate is one of the biggest industries in the world. With such a high revenue made annually, real estate is one of the industries people become interested in investing. However, there are many things to be considered when choosing to enter the industry.
It may seem quite overwhelming when you first take a peek at the industry, so it’s better to take it one step at a time. One of the most important topics that you can use to get started is property valuation.
Simply put, property valuation is an assessment of a property’s value based on a number of factors associated to the said property. This may include, but is not limited to the property’s location, condition, size, amenities, and other elements.
Property valuation is often done by professionals, which then determine the market value of the property. While it may be the best to hire a professional, it’s always good to know about the process itself to give you some insight to how the value of real estate comes to be.
Knowing how to properly determine the value of a property is one of the major skills that could be the key to your success in real estate endeavors.
The Philippines is no exception to the popularity of the real estate industry. Many entrepreneurs in the country are involved in real estate due to its high potential.
The process of determining the property valuation in the country is quite similar to the global standard of doing so. Before going into the different methods and approaches to determining value of real estate, it’s important to be familiarized with the concepts and terminologies used in the field.
Demand refers to the desire of consumers towards purchase goods and services. This concept also includes the willingness of consumers to actually purchase the said goods. Demand is also closely related to supply, which refers to the amount of goods actually available to consumers.
The Law of Demand states that demand of a product is inversely proportional with its price. As prices rise, the demand for it decreases. There are many other factors that may affect demand, but price is one of the main contributing factors.
Scarcity is tied directly to demand and supply. When resources are limited and demand far exceeds its supply, these goods and services become classified as scarce goods.
Time is one of the main determining factors of scarcity. Similar to how demand and supply changes over time, scarcity is also prone to changes.
Transferability is important in the real estate industry, especially in the Philippines. Transferability is the process of transferring ownership of goods. In real estate, goods have extremely high prices, which makes transferability a necessary concept.
When transferring ownership to a new owner, transferability determines how smooth the process will proceed. This includes but is not limited to transferring ownership of assets, land titles, and funds.
Lastly, utility refers to the worth of a product or service according to the consumer. As each consumer is different, there is no direct measurement to it. Hence, different models are used to theorize these values.
Consumers want to maximize utility as much as possible, to ensure that they get the value of what they’re paying for. In real estate, maximum utility highly affects a consumer’s decision towards the purchase of goods.
Once you’re more knowledgeable with the necessary concepts and the connections between them, it becomes much easier to comprehend the tactics used by professionals for estimating property valuation.
There are different methods and theories used for property valuation, with the top three approaches being the Sales Comparison Approach, the Cost Approach, and the Income capitalization approach.
Also referred to as the Market Data Approach, this method focuses on relying from previous transactions. By studying similar properties that have only been recently sold, the value of a property is dependent by comparing them with each other.
An estimation is reached by comparing at least three or four properties with the current one at hand, with each one having been sold in the market within the last year under usual market conditions.
This approach is often used for single-family lots, homes, and land – properties which often have similar characteristics.
On the other hand, the cost approach works by analyzing each component of a property individually. By having separate estimations for each building in the property, each one’s condition can be taken into consideration.
Depreciation comes into play when approximating costs of each building in the property. The estimations for each are then all added in the end in order to reach a final valuation for the property as a whole.
This approach is often used for real estate which have more than one building or establishment, or those whose property is observed to have physical deterioration.
Sometimes shortened to just the Income approach, this method focuses mainly on numerical values. As opposed to the sales comparison approach, the income capitalization approach focuses more on the future value of your property.
By estimating the price that consumers are willing to pay for your real estate, you are able to approximate the annual potential gross income of your property. Experts use a variety of formulas which have been theorized to give estimations as accurate as possible, such as the Gross Income Multiplier Method.
At the end of the day, there is no one proper way to go about property valuation. There are different approaches and methods that can be used, but it always boils down to the quality of your property.
To give you an idea of what a high-valued property shoul d be like, Brittany homes are the prime examples.
Home to only the most beautiful houses in the Philippines, luxury homes by Brittany assures you of only top-quality homes. The peak definition of luxury living, these homes are guaranteed to give you the best experience in your daily life.
The house and lot properties for sale by Brittany are priced in accordance with the comfort and luxury that it offers. With a wide variety of homes available, from the luxury condo in Tagaytay, the house and lot near Nuvali, or the Daang Hari subdivisions, Brittany lives up to its name as an award-winning real estate development company.
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