How to val­u­ate your prop­erty fairly

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AC­CEP­TANCE If there is one fac­tor on which es­tate agents can guar­an­tee that they will en­counter dif­fi­cul­ties, says Tony Clarke, MD of Raw­son Prop­er­ties, it is that many sell­ers will find it dif­fi­cult to ac­cept the mar­ket val­u­a­tion with which they are pre­sented. “Some­how a high per­cent­age of sell­ers are still liv­ing in the rosy, op­ti­mistic world of 2005-2007 when 20% plus an­nual in­creases were still pos­si­ble. The plain fact that we have en­tered a less buoy­ant, more strin­gent era, in which sup­ply in most ar­eas still ex­ceeds de­mand, and in which dis­tressed sell­ers have caused a big drop in av­er­age prices, have not yet been fully un­der­stood.” Clarke pointed out that three dif­fer­ent val­u­a­tion meth­ods are used — and these can give vary­ing es­ti­mates. Most good res­i­den­tial es­tate agents, he said, will use the Com­par­a­tive Mar­ket Anal­y­sis method. “With this CMA sys­tem, it is ac­cepted that the mar­ket does dic­tate the price of any prod­uct — and it is on the whole fu­tile to deny this.” The sec­ond val­u­a­tion method is the cost sys­tem — which is of­ten used by ac­coun­tants and pro­fes­sional valuers — where the cur­rent mar­ket value of the land will be as­sessed by CMA but the struc­ture and im­prove­ments will be val­ued on their re­place­ment or orig­i­nal costs ap­pre­ci­ated (or de­pre­ci­ated) at an an­nual rate over the life of the build­ing. The third ap­proach looks not at com­par­a­tive sale (and ask­ing) prices but the in­come that the prop­erty will gen­er­ate — and is best suited to com­mer­cial prop­erty.

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