Ultimately a property valuation is undertaken using a two stage strategy. The first stage is to make a comparison of the property with similar properties in the area; the second is to understand the adjustment factors that will affect the price in comparison to other properties.
When an estate agent makes a property valuation they will follow this process, first comparing, and then employing adjustment factors. In terms of the comparison typically the agent will look at properties in the area that are of a similar price and size and hence competing for the same cross section of the buying public. As well as looking at the current market, agents will also look at properties that have sold in the recent months to asses exactly how much the property will sell for after a period on the open market.
It is also important that whilst predominantly a seller, understanding that this process of valuation for the property you may be buying is of equal import. Before making an offer on a property it is always advisable to gain as much information on the house or flat, as well as its local area. By comparing the property price with similar properties in the area it is possible to assess the validity of the asking price resulting in a better idea of what the offer should be.
Naturally adjustment factors are harder to quantify but there are some general rules that can be applied to the process.
The first of these valuation factors is whether the property has had any building work or an extension constructed. This factor can be further categorised into three cost sectors, high, medium and low. High cost extensions will normally be an additional bedroom that fits with the existing style of the property. Medium cost improvements include an additional ground floor room, a fitted kitchen or a loft conversion. Low cost improvements include double glazing or an opening up of the property by knocking down partition walls.
That is not to say that all improvements will result in a higher value; for example an extension that takes up the entire garden is unlikely to improve the valuation figure. In a similar vein making improvements that do not fit the existing character of the property will also diminish the value, for example ugly glazing on a period property or an ill thought out partition wall.
The number of repairs that a property needs will also affect the valuation as a house in poor condition will normally have repair costs discounted from the eventual price. As well as repairs the local area is an important factor in the eventual value, a bad neighbourhood or a location on a busy road will lower the price but good schools and local amenities will in fact increase the price of a home or flat.
Finally, it should always be remembered that when a property valuation has been conducted there is usually room for negotiation with the vendor or agent. One strategy is to ask the vendor or agent how they can justify the asking price and if they can explain exactly what factors were included when making the valuation. By asking for supporting evidence it is possible to find the reasons behind the asking price and to assess whether it is possible for a renegotiation of the price.
Hopefully this article has made it clear what kinds of factors are included in a property valuation and how these factors directly affect prices. With a clear head and logical approach it is possible to understand fully how a home is valued and how an asking price is arrived at.
Real estate expert Thomas Pretty looks at how a property valuation is conducted and argues why it is important for buyers and sellers to understand the process.