Calculate Market Value of Property

When selling property, the question of “What is the actual market value?” arises. And with various methods in the industry, the assessment process can get quite confusing. We have listed the 3 most commonly used methods to ease your decision making.

First, let’s see what is “Market Value”?

Market Value of a property can be expressed as a monetary value upon which both the willing buyer and the willing seller agree on after following proper channels of marketing and negotiation. 

Disclaimer:

This article lists general information which can be used as a tool to measure an estimated value under ideal conditions. However, following any one of the methods below does not promise 100% accuracy and we suggest you consult a professional for better insights. 

Sales Comparison Method:

As we all know, demand and supply determine the price of any commodity. Property is no different and the Sales Comparison Method is based on a similar notion. This method is primarily based on how similar properties performed financially in the recent time frame under ideal conditions.

Step 1: Make a list of property details that cover location, size, total area, facilities, configuration (number of rooms, bathrooms, balconies etc.), property age, etc.

Step 2: Create another list of 3 properties and the prices they were sold at, making sure that the properties share 70% similarity to your property along with a dedicated column for differences noticed. These properties should not have been sold any earlier than 6 months.

Step 3: Now, calculate the average sale price of the 3 properties you have listed and then calculate the per square feet price. Once you have the approximate per square feet price, you can use that to multiply into the total size of your property. This should help you appropriate a standard price for your property. 

Note: Make sure to give enough leeway to adjust the pricing based on the condition of your property along with other features.

Cost Method:

This method is most useful in cases where the property has been remodeled and ascertaining a fair value seems far from easy as no other property in the vicinity compares justly. The cost method is designed while keeping in mind that the general buyer will not want to pay a higher price for the property with alterations that are not very relevant to him/her or cannot be compared with any other generic property with a mainstream purpose. 

Step 1: Consider how much it cost an individual to rebuild/ alter the property to a state where it can be easily compared with other properties in the vicinity that serve a similar purpose.

Step 2: Next, deduct the depreciation value of the property by giving generous thought to the condition of the property after time and utility have taken its toll. 

The value of the property after deducting depreciation can be realized as the approximate market value.

Component Method: 

This method helps one calculate both values of the property i.e. value of the land and value of reconstructing the property independently.

Value of Land: If land tax is collected in your city, the pricing allocated by the respective local authorities can be used as a guide to determine the value of your property. Proper consideration should be given to the potential of future growth prospects of the area and the price at which the sites/plots were sold to the public by the local development authorities initially.

Value of the land can be calculated based on the sale of built-up properties in the same area, after carefully examining several factors such as the zone use, frontage on the main road, shape, plot coverage and floor to area ratio.

Value of Building: The building value can be calculated by reviewing the present building value after deducting depreciation and figuring out the reproduction cost. 

Therefore, the total cost of the property can be expressed as:

Total cost = Value of building + value of Plot

Total cost = Total area x 10% of reproduction cost + value of plot

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