Finally, the conclusion of the Property Investment Tips series on Property Valuation Methods

As we can see, the three valuation techniques discussed in this series all use different methods to determine the value of a property, and all three have different situations and property types where their use may be more appropriate.

The market data approach determines the value of a property based on sales of similar properties in the area. This is the most commonly used method of residential valuation but has limitations in the fact that all property is heterogeneous and sometimes locating sales of a similar property may be difficult. The cost approach assesses the value of the land and then determines the depreciated cost to construct the building and improvements that exist on the land. This approach is suited to properties that may be difficult to value under the market approach. Properties that have one-off designs, unique construction or special purpose properties are all difficult to compare and so a cost …

The third article in the Property Investment Tips series on Property Valuation Methods looks at The Investment or Income Approach.

The investment or income approach to property valuation looks at the income producing potential of a property and determines a value based on this. It is ideally suited to situations where the property in question is to be used as an income producing investment. By assessing the “present value of future benefits of future ownership” the income approach can determine the suitability of an investment. This method is not very common in application for residential investments due to the market approach being a more consistent and proven method. The income approach is used on a number of commercial property valuations but is often overlooked in residential. For this method to work, a suitable capitalisation or cap rate must be determined, which is then used to determine the total value of the property based on the proposed income stream. To determine the income stream, a …

The second article in the Property Investment Tips series on Property Valuation Methods looks at The Cost Approach.

The cost approach takes a different look at the value of a property. Essentially the value of the property is derived by first establishing the value of the land or section (the market approach may be used for this) then adding to this is the current value of the structure (adjusted for depreciation) and other improvements to give an overall value for the property. This approach has some limitations in terms of residential valuations, the key one being able to accurately calculate the depreciated value amount of the building and improvements. One situation where it would be used in the residential market would be to calculate the value of a property that is yet to be constructed.

An ‘on completion’ valuation would take into account the land value and the construction costs to determine the final value of the finished product. This is a highly subjective technique …

The first article in the Property Investment Tips series on Property Valuation Methods looks at The Market Data Approach.

The market data approach to valuation looks at recent sales of comparable properties in order to ascertain a market value of the property. This approach relies on the marketplace dictating the acceptable price of property in an open market situation. One valuation principle that this approach relies on is the principle of substitution. The substitution principal dictates that a practical purchaser is believed to pay no more for a property or rental than it would cost to buy or rent an equally desirable alternative property that is on the market. Essentially what this is saying is that, people will not pay more for one particular property when there is an equally desirable property available for a lesser price.

Worldwide economic conditions have seen jobs lost and businesses close. With limited jobs available, the number of consumers who have defaulted on mortgage payments has increased. The …

As the economic environment brings about change, so property valuation must change to meet these new conditions. For property investors the value of a property affects everything from the purchase, property income, and importantly the investor’s ability to leverage for further investment. Before looking at any property valuation, an extremely important property investment tip is to understand what approach or property valuation method was used to determine it. From there you can cast a more critical eye over this vital element of property investment.

Property Investment Tips will look at the three most common methods of valuation and compare them as to how they relate to property valuation in 2010. There are three basic valuation approaches used to value property, with each using different means of finding the property’s place in the market. The methods include ‘the market date approach’, ‘the cost approach’ and ‘the income or investment approach’. The market data approach looks at the value of property sales …