5 main real estate valuation methods

19/04/2022

Real Estate valuation plays an important role in helping State agencies, businesses and individuals make decisions related to buying, selling, investing, developing, managing, owning, giving rent, tax, insurance, mortgage, and trade property. Learn about real estate appraisal with Moonka.

What is Real Estate valuation?

Real Estate valuation is the estimated amount of the value of real estate ownership (land use rights, ownership of houses, structures attached to the land) being bought and sold on the market at the end of the year. valuation time and for a well-defined purpose under the conditions of a given market with appropriate valuation methods specified with Vietnamese valuation standards or international practice.

Real Estate valuation methods in the globalization of the real estate market

Real estate is a commodity in the real estate market. When choosing a method of real estate valuation, it is necessary to ensure that the principles are consistent with the provisions of the law, and at the same time suitable to the characteristics, properties, and functions of the real estate to be valued, and in line with the integration trend of the economy. economic (real estate valuation should pay attention to the real estate product cycle and investment value in real estate projects in the country, as well as countries in the region and around the world). 

On the other hand, the choice of real estate valuation method depends on the ability to collect information from that real estate in practice. Currently, there are many methods of real estate valuation, but depending on the specific circumstances, market situation, and the reasonableness of each valuation method (the advantages and limitations of each method) that can be selected. Choose one of the following real estate valuation methods:

2.3.1. Direct comparison method

The direct comparison method is an evaluation method based on the analysis of the prices of similar properties (in terms of land type, area, land class, shape, street type, building type, and geographical location). ) with a successful transaction price or being bought or sold on the market at the time of valuation. The direct comparison method is best used when valuing residential properties or vacant land in residential areas, commercial and service properties with homogeneity (apartments, condominiums, rows of houses built of the same type, workshops, and warehouses built on the same premises for lease). The direct comparison method is based on the analysis of the purchase and rental of real estate compared in the market and the goods can be assumed to be substituted.

2.3.2. Cost method

The cost method is essentially the discounted cost method (also known as the contracting method) which is a method of estimating the parts of real estate (land plots and buildings, real estate, and real estate). on land). The value of the components of real estate is measured by the cost to purchase and build it. This is a method based on the theory that the market value of a defined area of ​​land to be invested in can be estimated by the sum of the land value and the value of buildings attached to the land after deductions have been made. Hao. Thereby, we will determine the price of real estate through that costing method:

Market price = Market price of land plot + Cost of regeneration and replacement of works on land 2.3.3. Income method

The income method is a method of estimating the market value of a property, based on the income that the property will bring or is likely to bring in the future. Real estate value is estimated by capitalizing the value of estimated future income in terms of present value. This method is often used to value properties that have the potential to generate a financial surplus that exceeds the direct costs of using the property currently, income-generating rental properties, investment-generating properties. profit. This method is very suitable for valuing real estate that is likely to bring a steady income over time or for commercial real estate – services, technology, agriculture, real estate are goods or Real estate can generate income like land.

2.3.4. Residual method

The residual method is a valuation method in which the market value of the property to be assessed is determined by its equity value on an estimated basis by subtracting all the estimated value of the hypothetical development of the property. all costs incurred to create that development. The residual method is applied to determine the value of a real estate when the property has development or has potential for development.

This method will be very effective if the property has potential value and this value will increase greatly when the property is developed.

2.3.5. Profit method

The profit method is a method of determining the price of real estate based on the profitability of using the property to be valued. The profit method is based on the assumption that the value of real estate is closely related to the realizable profit generated by the exploitation of that real estate, proving that the property is more valuable than non-profitable real estate. or low profit. Based on the above principle, this method goes into analyzing the estimated income of using real estate, then deducting reasonable business operating expenses, leaving a residual amount expressed as income. annual net for real estate. This net income is then converted into capital in the same way as in the investment method. This method is used to value special properties, such as hotels, public housing properties, cinemas, and other properties, where a comparison with similar properties is difficult. because their value mainly depends on the profitability of real estate. This method is also often used as a basis for calculating tax rates.

This Article is interesting knowledge about Real Estate Appraisal. Wishing Moonka investors a successful investment!

(Source: Economic construction Magazine, version 4/2019)

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