How To Calculate The Market Value Of A Property

The term market value refers to the professional opinion of what a property would sell for at arm’s length. That means being sold to an independent buyer, with no kickbacks or concessions.

This is based on factors like the local property market and supply and demand in the area, as well as specific property features like the number of bedrooms or the size of the property.

This is different from the market price, which is what the owner chooses to sell the property for. These terms are not interchangeable, despite some instances where the market price is the same as the market value.

Generally, you use the market value of a property to work out the asking price when selling. Having an asking price higher than the market value gives you room to negotiate with potential buyers.

Having a market price the same as or above the market value is good as it means making more profit, whereas selling for lower than market value is not recommended.

Seeing what trends are currently affecting the UK housing market both on a national and local scale is an important aspect of evaluating a property’s market value.

The Land Registry tracks the national housing market through the UK House Price Index, which can inform you of any trends the UK housing market is experiencing.

This collects the data of all sold properties recorded when the change in ownership is logged. The amount of data makes it the most accurate price index in the UK.

This data can take a while to publish, so sometimes is out of date by the time it is released. It is the most accurate price index to use when evaluating market value in the UK.

Halifax, the largest mortgage provider in the UK, also provides a monthly house price index.

Their data is faster but only samples their own mortgage transactions, averaging a size of around 15,000 per month. This makes their findings more up-to-date than the Land Registry but less accurate.

For a more local level, using sites like Zoopla to see the prices of properties sold in your area makes this research more effortless than ever. They even have a property price calculator which gives you a rough valuation on their website.

Collecting this information can help you understand if house prices are rising or falling, as well as what demand there is in your area. This information can help you when calculating the market value.

Knowing the local area can help with valuation. Factors such as schools, job opportunities, entertainment, and crime rates can influence market values, and you should take them into account when calculating the market value of your property.

Properties in areas with good schools are more likely to attract families who will want their children to be well-educated. Areas with fewer schools or ones that are not performing well are likely to be avoided by parents.

Crime rates in your area can also affect the market value of your property. Safer neighbourhoods will attract more people to move there, whereas properties in areas with higher crime rates will lower the market value.

Other establishments near your property like shops, restaurants, and tourist attractions will also affect the market value of a property. If there is little in your local area to do, then fewer people will want to move there.

If there is an active market in your area, you can compare the transactions of those properties with your own. Try to find at least three properties of a similar size and build to your own that have sold in the last three months.

This will give you a recent indication of how the property market is doing in your area. It is important to note that new builds‘ market values may differ from older buildings.

You can find if sold properties are similar to yours by listing all the key information about your property and comparing it to those sold.

This includes details like the square footage, the age of the property, the number of bedrooms and bathrooms, the overall condition of the property, and other things like any garages, pools, or gardens.

Once you have this information, you should calculate the average price that the properties sold for, and add on or take away additional values based on aspects of your property that the sold ones do not have.

You can also calculate a market value by square foot. Work out the square footage of the sold properties you are comparing and divide the price they sold for by this number. This is good with comparison properties of a different size to yours.

The residual method of valuation is best used for properties that are not fully developed or are expected to be rebuilt before the property is sold.

It calculates the market value of the property as it is now, by taking away the development costs of the land and the developer’s profits from the completed development’s value.

This is seen most often in buildings in need of renovations, buildings set to be demolished and rebuilt, and unfinished developments.

You need to first work out how much will be made from the sale of the property after development has finished. Then calculate the collected costs of development such as materials, labour, and insurance.

Next, calculate the expected returns on the investment. This depends on if the expected sales price of the property will be met, how long it takes to complete the sale, the worst estimation of construction costs, and other contingencies which may slow things down.

Once you have this information you can work out the residual value of the property. Bear in mind that this process relies on many variables, and is more of a prediction for the future than an estimation for now.