Property Appraisal

Published on 2015-08-11

Property appraisal relies on the known sale prices of comparable evidence i.e. other properties. The details surrounding the sale are also important e.g. location, type, style, size, condition and when sold.

Comparables obviously need adjusting according to the property being valued and should also take account of the state of the market which changes greatly over time e.g. the most recent boom from 2000 to 2007, followed by a slump for several years after the banking crisis. National reports of trends are helpful but local market trends need to be considered in the appraisal process.

Value may also be affected by the requirements of the seller who may wish to sell quickly at potentially a lower price or wait for the best possible price.

Comparable Grid Analysis

Knowing as much as possible about properties that have actually sold that are to be used as comparables to value another property is key in valuation. A comparable grid analysis can be constructed to house the information on the property being valued and the properties ranked as comparables and is an easy way to record relevant data. The grid will contain the main and important information about the property and the comparable properties e.g. number of bedrooms, condition, central heating. The agent will consider how much adjustment to make for the various features and the grid has space to note the adjustments that have to be made in relation to this information. The ability to adjust should use analysis of comparable data and good record keeping, as noted here, but also relies somewhat on experience.

The grid enables a cross-checking of details of the property being valued with properties sold. E.g. a comparable sold property has no garage and is not in good condition. Both would be minus points compared to a property being valued that is both in good condition and has a garage. This information aids the decision of how much to adjust: how the plus and minus points noted for each comparable result in adding to or subtracting from the price.

Market Appraisal

It is recommended that at least three comparables are used, which would be housed in the grid analysis above. Once the exercise is complete, the results need to be inspected to decide how to reach a conclusion from the comparable analysis. Ideally, each comparison property would give the same results from the analysis which would reinforce the appraisal. However, in reality, the results will often differ slightly. In this instance, ranking the answers in terms of which are the best and worst comparables i.e. which most closely resembles the property being valued and how near to the appraisal date the sale was concluded, is advisable. Then take a view on the likely value, or range of possible values, for the property being sold.

If there are four comparable properties, it is possible to take an average of the four figures. But some comparables are better than others, as previously stated.

In order to assist this process, evidence of properties recently withdrawn unsold could also be considered as this would normally indicate the price was too high. The asking price of properties on the market but not sold could also be included.

Categories: Residential Sales Property Appraisal