If you’re thinking about selling your house, the first thing you need to know is its value. While an estate agent will help determine the asking price of a house, the value of a property is subjective as it might be more valuable to one person than it is to another.
There are three basic methods to determining a property’s value: the comparable sales method, the income approach, and the cost approach.
Comparable Sales Method
The comparable sales method to pricing a home, which is also referred to as inferred analysis, compares the sales prices of similar properties within a location. When you ask an estate agent to value my house in Barnsley, he or she would compare the sales prices of houses of the same size and with the same amenities as yours within your area to help determine its asking price. This is the most common method used to determine a home’s market value.
The estate agent gathers data regarding sales prices and home and lot sizes from a variety of sources. He or she may check with the Land Registry, examine estate agent databases, or go online to check resources regarding home sales. One of the flaws of this method is that it doesn’t take into account the property’s intrinsic value, which means it doesn’t indicate whether a property is priced reasonably for an individual to sell or buy it.
The income approach is also called the intrinsic or fundamental method of determining a property’s value. Using this method, the current value of a property is based on its estimated future net income from rent or its resale value. When calculating the value of a property using this method, discounted cash flow is part of the equation.
This method can be complex, but it is the method most often used by financial and investment professionals when determining a property’s value. However, this method is often ignored by others within the industry because it doesn’t take into account actual market prices for properties.
This method for determining a property’s value lies between the previous two valuation methods. The cost approach estimates a property’s value based on the replacement costs of its separate components. For instance, using this method, the land that the house sits on would be valued as if vacant and then adding the cost of rebuilding the home, less the current depreciation of the house, would give you the value of the property.
This method determines a property’s actual cost or value. However, other valuation methods have to be used to determine the value of the land. It also doesn’t take into account the difference between the cost of the property and its true value.
Before you contact an estate agent about selling your home, you can estimate its value using one of these methods. The easiest would be the comparable sales method as you could easily gather the information yourself. It will give you an idea of how much you would get from selling your house before beginning the sales process.