Property Valuation and its Important Approaches

The process of estimating a property's worth is known as property valuation. To determine a property's worth for uses like sales, investment analysis, determining insurance costs, and paying property taxes is the main objective of Property Valuation. Demand, utility, scarcity, and transferability are the four fundamental factors of property valuation that are used to calculate a property's worth.

Property Valuation Approaches:

Property value may be determined using these methods, which are based on economic principles. Below is a list of several popular economic approaches.

Conformity principle, the value of a piece of real estate is increased when the architectural and land uses of other properties are comparable. Zoning laws, which help in allocating plots of land or properties for related uses, promote this idea. Although it does not require uniformity, this concept does encourage landowners to choose to conform to an acceptable level of consistency in order to increase property values.

According to the notion of change, property values will fluctuate as a result of shifting economic conditions. Property prices will fluctuate depending on changes in consumer demand as well as economic factors like interest rates, unemployment rates, and socioeconomic tendencies in the town.

In the substitution approach, the price of a comparable substitute property will set a limit on how much a property may be valued at. The price of a comparable substitute property will be used by a consumer to estimate the worth of another property.

Based on the supply and demand approach, the laws of supply and demand will have an effect on property prices. Property prices will drop when there is a surplus compared to demand, but they will rise when there is a shortage.

Using the highest and best use Approach, the value of a property should be calculated assuming that it would be put to its highest and best use.

Under the method of balance, the components of the factors of production for properties must be economically balanced in order for the greatest property value to be realized.

Based on the theory of growing and decreasing returns, property prices will rise until they reach a certain threshold.