Assessing House Value
Using the Comparables Method
Estate agents value properties by comparing them with similar properties in the area. These properties fall into two categories:
- properties that are currently for sale in the same price range and are therefore competing for the same buyers
- and properties that have recently been sold where the actual price achieved is known.
You need to make your assessment of the value of the property that you are intending to buy using the same method.
Before you make your offer try to obtain as many details of other properties in the area as possible. How do they compare? If you are buying an estate-type property you may be able to find comparables that are almost identical to the one that you are considering. Valuing this type of property is relatively easy.
Using Adjustment Factors
If you are intending to buy a more individual property, you will need to apply a number of adjustment factors to the comparable properties that are available. Some of the most important factors to take into account are listed below.
Extensions and improvements
The full cost of extensions and improvements will not generally be recovered. The proportion of the original cost that is recovered will depend upon the nature of the improvement, as below.
High cost-recovery (up to 100 per cent):
- addition of extra bedroom in a style that is in keeping with the original property
- redecoration in a neutral style
Medium cost-recovery (up to 50 per cent):
- addition of ground floor flat-roofed extension
- fitted kitchen
- loft conversion.
Low cost-recovery (less than 25 per cent):
- addition of outdoor swimming pool
- double glazing
Some improvements can substantially reduce the value of the property, for example:
- extensions that occupy the entire garden
- ugly double glazing on period property.
Repairs
As with improvements, the full cost of repairs made to the property is unlikely to be recovered. Many buyers underestimate the cost of repairs and some are prepared to pay a premium for a house in poor condition in order to have the satisfaction of refurbishing it in their own taste.
Area
In many towns a house in one road can command a very substantial premium over houses in the next. It is impossible to generalise about this but the boundaries are usually well known locally.
Location
A house on a busy road, or one backing onto a railway line, will be worth substantially less than an identical house in a quiet street nearby. An extremely adverse location could reduce the value of a property by up to half.
New developments
Many people will pay a premium to live in a brand-new house. All new developments must therefore be excluded from your comparable evidence.
Square footage/meterage method
A method of valuation that is used extensively abroad but quite seldom in the UK is square footage. If you are having difficulty coming up with a value for an unusual property, it may be worth calculating the price per square foot. Divide the asking price by the total floor area. For example:
Asking price: £100,000
Floor area: 1000 sq.ft.
Price per sq.ft. £100
Then try doing the same calculation for similar properties that are for sale in the same price range.
Asking the Vendor
One final option is to ask the vendor or the estate agent to justify the price that is being asked. Say that you are thinking of making an offer and the price looks a little steep and ask them how they arrived at their figure. What supporting evidence are they able to provide? Do their arguments seem convincing?
