Getting your property valued: Read this first.

Thinking of selling up? Inherited a property? Or simply just curious? There are many reasons why you may want to have a property appraised. But the process can be complex. Every property is different, and the market can be volatile at times. You also have a number of options when valuing property. With the help of Bestag, read on for a list of the key methods and other useful pointers.

For residential properties

Short online assessments

You may have already come across online pages offering to value property. Services like this tend to only require minimum information. Don’t expect a pinpoint market price for your property – what you normally get is a range instead, which is sometimes very wide.

It will give you an initial benchmark and reduce some of your guesswork. But if you’re looking to sell, you’re going to need a far more accurate figure.

Hedonic valuations

Banks tend to favour this approach, which involves comparing statistics. Namely, you compile, weigh up and compare key points: the location, numerical variables like the total room count, as well as qualitative information – how old the property is and what state it is in. Hedonic valuations also depend on historical data from previous properties sold, so they’re always retrogressive. And since the databases differ depending on the provider, multiple hedonic assessments from different providers is your best bet.

This method is usually considered accurate to within 20% or so either way and is often chosen because it’s relatively affordable and reliable.

The real-value method

This approach ignores the market - the material value of the property is the sole criterion. But it can serve a purpose: Where it really comes into its own is for properties that can’t be valued very accurately when working with hedonic data. Luxury properties, for example, or those snapped up by collectors. In such cases, the real-value method is applied alongside the hedonic method. The land value (tax rate, price per square metre of similar locations and comparable properties, proximity to urban centres) and the current value (theoretical new market value minus depreciation due to time and condition) are among the other elements taken into account.

For investment properties

Capitalised earnings method

This is a forward-looking method and only works well with properties that generate long-term rental income: The future net rental income is divided by the applicable capitalisation rate. The latter usually ranges between 2.5% (for large and modern residential properties) and 8% (for smaller and older properties) and depends on the following factors:

• The likelihood of future renovations being needed or the property becoming vacant

• The number of units, location, age and overall investment

• Whether the premises are commercial or residential

• The risk tolerance and desired return of the investor

Discounted Cash Flow Method

The discounted cash flow is also based on future rental income. It is used when such income applies for a limited period or is particularly volatile. It is particularly important for usufructs or residential or building rights.

For construction projects

Residual value method

When an investor wants to build a property, regardless of whether to rent or sell, the residual value method is used to determine how high a buying price can be fetched. The residual value is calculated as follows: Potential income minus the planned investments, which, in turn, corresponds to the approximate market value of the property.

Tips on how best to sell your property

Whatever your situation, keep the following points top of mind. Remember, selling a property is generally one of the key transactions you’ll make in your life:

In-person viewing is a must

To assess a property as accurately and comprehensively as possible and to get more detailed feedback than brief online valuations provide, having a house inspected or valued on site is a must.

Influence of interests

Which interests prevail for the assessor? Valuations made by banks and architects in particular must always be taken with a pinch of salt. For banks, for example, a stable property price on the lower side is generally in their interests. Architects, conversely, often over-focus on the real value (i.e. the location and substance) of a property - and often take too little account of the market. Accordingly, if you’re after the best price, you should work with professionals who know the area and know their stuff - i.e. estate agents.

Working with real estate agents

Please note here - you should always invite multiple estate agents to value and make sure they are aware of this. That is how you get a realistic price. An estate agent working singly is likely to under-value the property slightly, to improve the chances of a quick sale. On the other hand, when you get multiple agents involved, overvaluations are possible. Valuations tend to be on the high side to help them get your business - but worry not, there is a proven remedy.

Avoiding overvaluations when real estate agents compete

Try to avoid overvaluations at all costs, otherwise you may well end up with unpleasant price reductions. If you have any kind of competitive process, it’s best to link the commission to the estate agent’s valuation. In other words, the agent only receives the agreed commission once the expected price has been reached. In the event of any deviations, a bonus/malus (= carrot and stick) system applies and additional incentives emerge. If the property is overvalued, this means less commission. A better price earns the estate agent a bonus, which they will then strive to achieve.

This is how our partner Bestag carries out the valuation in the sales process:

• A Bestag client advisor visits the property on site and sets up viewing appointments for multiple estate agents on the same day.

• The estate agents are chosen based on proximity and performance.

• They value the property in a competitive process based on the bonus/malus (carrot and stick) system.

• You then receive the valuation report, which includes three estate agent valuations and two hedonic valuations.