Home Valuation: What is it and how does it work?

March 23, 2022 . Home buyer's education series . 10 min read
home valuation

In India, the real estate sector is recording a surge and hence home valuation is gradually gaining importance. Home is a property that works like a fixed asset and a long-term investment that allows you to add diversification to your securities and assets. It acts like financial security, especially during the time of an emergency. Home is a long-term investment and has value. It is extremely important to keep a track of the home valuation cost in order to understand the worth as per the current market scenario.

What is home valuation?

As the name suggests, home valuation is the process of estimating the cost of the home as per the market standards. The process involves the identification of the cost after analyzing various factors like its location, size, conditions, regulations, neighborhood, and features. 

Home valuation tends to change from time to time due to continuous infrastructural development. It hence becomes extremely important to evaluate the price of the home eventually. The home valuation report can come extremely handy when you are willing to give your home for rent or are wanting to sell it.

How does it work?

A home valuation can be carried out by a surveyor or a contractor. There are various methods that can be used to determine the home valuation. These methods are designed to determine the value of the house based on various factors like quality of the raw materials used during the construction, the location, and locality, the safety measures taken to build the property, the maintenance of the property, and more. A home located near the posh areas will tend to value more as compared to areas located near railway stations or in the outskirts of a city. 

In India, the below-mentioned methods are used more frequently to conduct the process of home valuation.

Comparison method

The comparison method is one of the aptest methods for finding out the value of the home. In this method, the probable rate of the property is determined based on the values of comparison. This method is extremely recommended to check the valuation of the property for occupying it as compared to giving it on rent. Lists of recently sold property, the location, and neighborhood of the property, the age and construction style of the property, and various amenities present inside the property – there are a few factors that are acknowledged in detail while finding the valuation using the comparison method.

Contractors’ method

This home valuation method works in conjunction with comparative pay between two similar properties in different locations. While location and locality become the second factor that affects this method, it mainly focuses on the amenities and the facilities that the two properties have to offer. Based on how modern the construction of these properties is, the valuation is carried out.

Belting method

In India, if the building or the house is located on the main roads, their prices are relatively higher as compared to the properties that are located in the interior lanes. With the help of the belting method, the entire area covered by the property is divided into three different belts and every single belt is valued differently after assessing various factors. While the first belt is considered to be marked at the highest value, the second belt is priced at the two-thirds amount of the first belt and on the contrary, the third belt is rated at half the value of the first belt.

Investment method

Investment method as the name suggests is a valuation method used to check home valuation when it is clearly brought as an investment. This process is based on directly considering the conversion of income through the property (rent) as capital. Discounted cash flow method is largely followed for this calculation. The cash flows expected to be earned by the investor in the property are taken into account to project the valuation.

Conclusion

Whenever it comes to home, there are a lot of questions that any individual is bound to have, especially during buying or selling of the home. The above-mentioned methods are broadly utilized in India in order to carry out a home valuation. You can choose the method that best suits you based on your requirement and the purpose of finding out the valuation rates. 

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