Real Estate Investment: Understanding the Concepts of Property Valuation

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If you are planning on purchasing a home, rental building or commercial space for business use, you should think about the property valuation. As implied, valuation is the process by which you determine an asset's worth. The valuation procedure is crucial for numerous endeavours in real estate, including looking for financing, analysing a potential investment and listing buildings for sale. However, the most important benefit of the valuation process is determining the best purchase or asking price. Consider this short discussion on simple concepts on valuation to help you understand the process in relation to real estate investment.

Basic Property Value 

One must determine the current worth of the potential future benefits which will arise through the ownership of specific property. In general, real estate is different from other consumer goods because the value is realised over time. Therefore, you must evaluate factors such as economic trends, social trends, environmental conditions and government regulations as well as demand, utility and transferability to determine basic value. When shopping for a suitable property, you should consider these factors so that you will identify the suitability of real estate for investment.

Property Cost and Price 

There is a common misconception that property value is equal to the cost or price of the real estate. However, these elements are different, and they will play a role in the valuation process. The cost of property refers to the actual expenditure while the price is the amount of money paid for an asset. The cost and price will affect the value of the real estate, but these factors do not determine the value. Sometimes, the sales price for a house can be higher or lower than the actual property value. For example, if you purchase a building and find a flaw later, the price you paid would be higher than the real value. 

Current Market Value

Finally, it is critical to note that the market value will affect the valuation process and results. An appraisal will be performed to get the estimated value of property within a specifies period. The goal is to identify the most probable price that the real estate asset will obtain in an open and competitive market. However, you should note that the market value will not always be equal to the buying price. For example, if a seller is under duress, the purchase price will be lower than market value.

If you are uncertain about property valuation procedures in your region, you should consult an experienced real estate agent, like one from Carter Real Estate.