Today we will discuss the various property valuation methods in regards to house valuation Auckland. There are five main methods that can be used for conducting property valuation.
A property valuer or an appraisal service provider might use one or multiple methods of the five in order to calculate the value of a property rather accurately.
The 5 main methods to conduct property valuation are:
- The Comparison Method
- The Profits Method
- The Residual Method
- The Contractor's Method
- The Investment Method
The Comparison Method
The most prominent and preferred of the five property valuation methods for house appraisal Auckland is the comparison method. This method is used to evaluate the common kinds of properties, like houses, shops, office places, and standard warehouses. The market should be stable and comparable for an accurate evaluation.
The Profits Method
The profits method is used when there are no comparable rental or sale transactions of a property in the area. The profits method deducts all working expenses(excluding rental payments) from the estimated gross profit of a business; this gives a divisible balance. This method is mostly used for pubs, hotels, nursing homes.
The Residual Method
The value of a property with development potential or vacant land is often calculated by the residual method. Land value is calculated by subtracting the cost of development from the gross development value.
This method has been declared inaccurate and is no longer commonly used because of the high number of variables that are involved in this method.
The Contractor's Method
This method is a cost method that can be used for valuation when comparative profits and the investment method of property valuation cannot be used. Because of its unreliability, this method is also called the method of last resort.
This method determines the value of a property based on the cost of production and not on the basis of demand and supply.
The Investment Method
This method is used to evaluate the market value of a leasehold or a freehold interest of the land or property from its future income potential. This method is typically used for rental properties, where a tenant is paying the landlord with an interest to his capital investment.
The method first finds the revenue then applies the profit to future rental income(discounted back to present). This gives the net present value(NPV) of a property. NPV indicates the current worth of a property.
We hope the details mentioned above regarding the five main property valuation methods will prove to be informative and insightful to our readers.
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