How To Compute a Property's Market Value
Real estate, unlike most luxury goods or cars, doesn't depreciate over time, making it a good investment. But have you ever wondered why?
You’ve probably heard it from the friendly property specialists selling condominium units in the mall that they’re selling properties “for investment,” and they’re not wrong. Real estate, whether it is a lot or a house, is consistently a good investment due to its steady appreciation value—meaning, the amount that you can demand for your property goes up through time.
Why does real estate appreciate, not depreciate?
Sharon Saclolo, Associate Director and Head of Valuation of JLL Philippines, a real estate professional services and investment management firm, says, “Property values increase because of continuous development. For instance, a development complex can offer an anchor feature that will attract more locators, creating demand for the properties surrounding it, increasing their values.”
A huge example of continuous development and attracting more locators is Makati—what used to be farmlands was continuously developed in the 50s, and now it’s the business center of the Philippines.
Factors such as a property's location, development, and accessibility play a huge role in the rise of a property's value. “Proximity to developing areas, types of developments in the vicinity of the property and their price profiles, and the accessibility of your property will determine the rise in values. For instance, if a new expressway is constructed near your property, the value of your property increases because it becomes more accessible.”
How do you compute for a property’s appreciation value?
Knowing how much your property is worth will come in handy for several reasons—you’re looking into selling it, or you’re trying to figure out how much your share is if it’s a shared property, or you need to report it for tax purposes.
Ms. Saclolo says that if you want to figure out your property’s appreciation value on your own, the first thing you need to know is your property’s market value. She says, “This is the value that the general market is willing to pay in exchange for the property today.”
How do you figure this out for yourself? According to Ms. Saclolo, these are the steps you can take to be able to come up with a rough estimate:
Check out your neighbors.
Ms. Saclolo says that your best bet would be to compare your property to the other properties surrounding it. “Check their prices out. The more similar the comparable property is to your property, the better.” Not sure where to start? Head to the Bureau of Internal Revenue (BIR) website and look for your area’s zonal values per square meter, or simply scout online for properties being sold within your property's location.
List down your similarities.
Choose a property that’s almost the same as yours, and literally list down the things that make your properties similar. “Compare them in terms of location, property condition, shape, property maintenance if it’s a building, and property size,” Ms. Saclolo says.
Adjust your price.
Do you think that your property is better than the other property? Ms. Saclolo says to adjust the value of your property by 5% to 10%. If you think the other property is better, shave off around 5% to 10%. “Do this per factor,” Ms. Saclolo says. “Add up all your ‘adjustments’ to get the net adjustments, then multiply that by the transacted price for that property. That is roughly the market value of your property,” she adds.
Try to be objective.
Admittedly, property owners will have a tinge of favoritism towards their own property, no matter how objective they think they are. If you think that the market value that you came up with is too subjective, Ms. Saclolo says, “It’s hard to separate special values attributed by owners or buyers to properties from the market value. A licensed appraiser will be able to help you determine market value using various approaches to value, depending on the type of property you have and the purpose of the valuation.”
Knowing what your property is really worth will give you peace of mind that if the time comes that you need to sell it, you sold it at the right time, and you’ll be receiving what you deserve.
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