Valuing or appraising a property is an art – not a science, however use a trained and experienced consultant to assist you. The three important skills needed are:-
- the ability to successfully negotiate;
- to pinpoint where value in the future can be introduced; and
- an understanding of all aspects of property.
It is the last point that we will touch on in this blog.
When evaluating what a prospective property is worth, one could use either the direct comparison or summation analysis approach.
The direct comparison approach is used where a property to be appraised or valued is very similar to a recent sale as to enable the properties to be compared. While most will not make major adjustments, BQ1 does make the necessary adjustments for points of difference. Sales evidence must be separated and analysed.
The summation analysis approach takes the land value and adds to it the improvements that have been added to the site, for example the house and any additional enhancements like pool, chattels, driveways and fences. Thereafter, these improvements are accordingly depreciated.
It is imperative that transactions considered for comparison must be voluntary ones, not sales where the vendor has been forced to sell, that is because the banks have foreclosed.
Further consideration must be given to:
- Location – More reliance should be placed on properties closer to the subject property. A quite road is very different to a busy thoroughfare.
- Dates of Sales – In periods of rapid change a gap of a few months may result in a substantially different outcome.
- Title and Tenure – The title and tenure should be the same. In other words a strata titled unit is better accepted by the community than that of company title.
- Zonings – is the property an R2 or other zoning? Other zonings may give additional advantages or restrictions.
- Physical Characteristics – Size, age, amenities and structure can change the value.
BQ1 