Property Valuation Methodology: Introduction

Assessing the value of a house is a central task for any participant in the property market. Sellers base their asking price on the valuation, while property buyers need to decide whether a certain real estate is worth its price and, if not, how much to offer for it. A valuation is not simply your estate agent telling you a couple of similar houses down the road are on sale for £x. Appraising the value of a property is a complex matter where many factors have to be taken into account - it is a combination of art and science.

Estate Agents & Property Valuation

It is a common misconception that estate agents value your property for you. Agents simply guide you to a suggested asking price and do not claim to offer an objective and accurate valuation. Independent property valuations are performed by chartered surveyors.

It is important to be aware that not all estate agents have your best interests at heart. The initial asking price an estate agent recommends might be over-inflated because of the desire to win a sale instruction. On the other hand some estate agents may encourage a seller to accept a below-market offer in order to secure a quick sale. Despite being paid a percentage-based commission, estate agents may make more money by turning over properties quickly at a lower price than holding out for a higher price and having properties sitting on the books.

DIY Home Valuation

It is perfectly possible for non-professionals to conduct their own valuation and gain a solid understanding of their property's worth.

Unfortunately, a thorough understanding of valuation theory and methodology is not commonplace. There has been little comprehensive literature available as to what constitutes value and of the different methods of determining house worth. The following article will provide some insight into theoretical approaches to value and valuation methodology.

There are two main theoretical approaches to determining the value of a house, namely the Comparable Sales Method and the Income Sales Method Approach. A third method, the Cost Approach, will be discussed briefly, but since it is not an autonomous approach, emphasis will be put on the first two methods. The first valuation method focuses on actual market data, whereas the second calculates the profitability of the investment. Since the two approaches complement each other, a carefully conducted valuation should always use both.

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