Whether you’re buying a home for the first time or a potential investor who’s curious about the property, understanding property valuation is a very important step that needs to be taken into consideration as it will help you analyze the returns you may get in the future. It plays a key role in real estate transactions, tax assessments, insurance premiums, etc. The factors that revolve around property valuation are location, age of the property, sustainability of the property, amenities, accessibility, and others. Before delving further let’s understand what property valuation is.
What is Property Valuation?
It is the process of obtaining an estimate for the value of a property based on location, condition, and various other factors. A qualified surveyor conducts the valuation in person, taking notes and pictures, and provides you with a valuation report thereafter.
Importance of Property Valuation
It is a significant step for many reasons. It helps homebuyers and sellers determine a fair selling price, ensuring that neither party is overpaying or underselling. For homeowners, it becomes a valuable tool to assess their property’s appreciation over time.
Fair for Buyers and Sellers
A potential investor or buyer is prevented from overpaying for a property, while for sellers, it helps in setting a reasonable price. Overpricing a property can lead to it languishing on the market while underpricing can result in lost profits.
Prevents Property Litigations
In India, property conflicts are not uncommon. That’s where property valuation comes into the picture as a savior. It facilitates the equitable distribution of inheritances among heirs in this way. And not just that, property valuation protects investors against dishonesty and fraud schemes. It supports and guides one in making better decisions about real estate since it gives precise market value.
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Proper Wealth Management
With property valuation, homeowners can track a property’s appreciation over time through regular valuations. It’s a valuable tool for wealth management and estate planning, enabling individuals to make informed decisions about passing on assets to heirs or beneficiaries.
Useful for Renovation
A building’s or property’s value rises with renovation. To determine the true worth of a house, however, people should consult a qualified property valuer before making any remodelling investments.
Property Taxation
Many local governments use property valuations to calculate property taxes. A precise valuation ensures that property owners pay the correct amount of tax, avoiding overpayment or underpayment.
Aids in Insurance Coverage
Property valuation is essential for insurance purposes. Underinsuring a property can leave you financially vulnerable in case of damage or loss while overinsuring can result in unnecessarily high premiums.
Helps in Financing and Refinancing
Lenders often require property surveying when you apply for a mortgage or refinance an existing loan. The valuation helps them determine the property’s collateral value and the loan amount you’re eligible for.
Helps in Home Loan Application
Reputable lenders require a property valuation to assess a home loan’s interest rate. It also establishes different mortgage terms and conditions.
Mortgage-Related Perspective
If a buyer decides to take a mortgage to buy a property, the bank would first undertake a property evaluation before authorizing the loan amount. The final property appraisal evaluation determines various mortgage terms and conditions. Before issuing a loan for many developments and redevelopment projects, the bank conducts a valuation exercise to examine the project’s feasibility.
Factors that Affect Property Valuation
The following are factors that contribute to Property valuation.
Location
Location is one of the key aspects potential homebuyers take into consideration. Brokers often list higher prices for commercial properties in well-developed areas compared to residential ones, and freehold land properties tend to have higher values than leasehold plots.
Amenities
These days, it’s not just about the availability of electricity, water, or sewage. The needs of homebuyers are way beyond necessities. They opt for homes that come with amenities like security, swimming pools, multipurpose gyms, multi-purpose halls, etc.
Infrastructure
Investors take into account infrastructure development when considering property investments. The presence of roads, flyovers, railway stations, airports, bus terminals, educational institutions, hospitals, entertainment venues, retail markets, and other essential amenities closely ties the increase in property value.
Affordability
Affordability plays a very important role in real estate properties as it establishes a connection between property valuation, interest rates, and wages.