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.”
Understanding Market Value
Market value is a critical concept in real estate, representing the price that a property would sell for under normal conditions. This value is significant for property owners and those liable for taxes on the property. Market value is influenced by various factors, including location, property condition, and economic trends.
What Is Fair Market Value?
Fair market value (FMV) is the estimated price a property would fetch on the open market. It's a price agreed upon by a willing buyer and seller, each possessing adequate knowledge of the property and neither being under any compulsion to transact.
The Economics of Market Value
The real estate market operates on a price discovery process where values are proposed and negotiated. Market value depends on the economic evaluations of both buyers and sellers, influenced by supply and demand, regional economic conditions, and the broader economy.
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.
To estimate a property's market value, one can compare it to similar properties in the area, adjust prices based on comparative features, and consult licensed appraisers for objective valuation.
Steps for Estimating Market Value
- Research comparable properties and their prices.
- List similarities between your property and comparables.
- Adjust your property's value based on factors like location, condition, and size.
- Seek professional appraisal for an objective market value estimate.
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.
Legal and Ethical Considerations in Appraisals
Discriminatory practices in appraisals are illegal and can lead to disparities in property valuation. It's important to be aware of mortgage lending discrimination and to report any suspected discrimination to relevant authorities.
Other Tips to Help Filipinos Compute for the Properties' Market Values
To help Filipinos compute their properties' market values, here are additional tips that can be considered alongside the general steps mentioned in your initial output:
Use Local Government Unit's (LGU) Data
LGUs in the Philippines often have accessible data on property values, which can serve as a reference point for market values in the area.
Check Official Zonal Values
The Bureau of Internal Revenue (BIR) publishes zonal values for different areas in the Philippines. Zonal values give a minimum value for tax purposes but can also provide a baseline for market value estimations.
Consider the Economic Progress of the Area
Economic developments, new infrastructures like roads and malls, or government projects can significantly impact property values.
Review Historical Price Trends
Look at the history of property prices in the area to see how they have changed over time; this can offer insights into future trends.
Assess Rental Income Potential
For income-generating properties, calculate the potential rental income which can give an indication of the property's earning power and thus its market value.
Participate in Property Auctions
Observing property auctions can provide real-time data on how much buyers are willing to pay for properties in a competitive setting.
Consult with Local Real Estate Professionals
Real estate brokers and agents with experience in specific areas in the Philippines may have invaluable insights into market conditions and property values.
Review Property Listings
Online property listings for the area can offer information on asking prices, though they may not always reflect final selling prices.
Understand the Impact of Property Taxes and Other Levies
Be aware of the property taxes, transfer taxes, and other levies that can affect the net value realized from a property sale.
Stay Informed on National Housing Policies
Changes in housing policies by the Philippine government can influence market demand and supply, affecting property values.
Frequently Asked Questions on Computing Property's Market Value
What determines a property's market value?
Market value is influenced by location, property condition, economic trends, and comparable sales.
Can I estimate my property's market value myself?
Yes, by researching comparable properties and adjusting based on similarities, but a professional appraisal is recommended for accuracy.
How does development affect property value?
Development can increase demand and accessibility, leading to higher property values.
What is the role of an appraiser in determining market value?
Appraisers provide an objective opinion of value using accepted valuation methods.
Is market value the same as the selling price?
Not always; market value is an estimate, while the selling price is the actual amount agreed upon by buyer and seller.
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