Planning on selling your property but don’t know its market value? Now, while we suggest that property valuation is best left to certified professionals, being aware of how much the property is worth can be beneficial to owners like yourself.
Understanding the value of your property.
The first thing you should remember is that your property’s worth is always based on its current market value. According to The Philippine Valuation Standards, the Philippines’ adaptation of the International Valuation Standards, market value is:
“The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.”
The important term to take away from this is “date of valuation,” which means that your property can be valued differently at different times.
How to find your property’s worth.
There are three common methods utilized when appraising property:
If you’re planning on valuing commercial and investment properties, then the Income Capitalization method is the one to be used. This method assesses income-producing properties by applying revenue multipliers or capitalization rates to the net operating income (NOI) of the property.
The formulae for Capitalization Rate and NOI are as follows:
Capitalization Rate = Annual Net Operating Income ÷ Cost or Value
NOI = Gross Potential Income – (Vacancy + Collection Costs) – Operating Expenses
As said earlier, the market value of the property can usually be a pretty accurate indicator of your property’s worth. One of the variables which affect the market value of the property is the land value. Land value is commonly based on the market value of the area where the property is located. The market value of the property should be considered distinct from the zonal value, which is the value established by the government. If you’re trying to appreciate house and lots, it is best to first establish the different values of the land and the building (with its improvements) separately before summing them up as a whole.
This method focuses on understanding the selling prices of similar properties located in the same area as yours. Most of the time, the prices can be obtained through public records, real estate brokers, appraisers or personal inquiries.
While this method would most likely not field accurate results as their properties might not be identical to yours, it gives you a better idea on how to value your property. Factors such as lot size, number of bathrooms, and date of sale vary from property to property so you have to adjust the value based on your comparison. The main idea of this method is to simulate the value of your property by using the values of others, with adjustments to make them identical to yours.
While using these methods won’t field you the same answer that a certified property appraiser will give, you can use these methods to help yourself better understand your property’s value. For homeowners who want to know the worth of the property, the cost approach is the most recommended as the value is the easiest to obtain. Any changes the property undergoes, whether enhancing or devaluing in nature, should always be taken into account each time you make an estimate.
Remember that these methods are only here to serve as a guide on how you can estimate your property’s worth. You can always explore other options to get a better understanding of the subject, such as combining some of the methods found above or using a whole other method entirely. However, if you are serious about putting up your property on the market, it is recommended to first get advice from a professional appraiser.