The real estate appraisal is a judgment of monetary value of a right inherent in a property. It always has forecasting nature. A professional appraisal presupposes a set of technical, economic and market knowledge; it is not limited to considering the aspects related to the marketability of the good but also the legal-administrative and financial ones linked to the property. In order to carry out an accurate valuation it is also necessary to collect all the documentation relating to the property (deed of provenance, hypo-cadastral view, floor plan, habitability, Energy Performance Certificate, legal status of the property, etc.).
Despite the fact that the value of a property may have an emotional component, it is always a good idea to contact a professional for an objective and effective appraisal that takes into account market values, the specifics of the individual property and some technical parameters.
Today we will see how to calculate the market value of a property for the purpose of buying and selling.
Since there are properties with different typological characteristics according to their intended use, we will consider private residential properties (cadastral category A with the exception of cadastral category A/10).
PURPOSE OF THE ESTIMATE
Almost always the estimate is carried out by the Owner of a property before putting it on the market.
It may happen, however, that it is the Buyer who requests the estimate: let's think, for example, of those who want to buy a property and be aware of its real value before submitting a proposal. On the Buyer's side, it is important to establish whether the purpose of the operation is the purchase for residential use or an investment: in the latter case, in fact, it is necessary to consider the economic utility of the property in terms of profitability.
In assessing a property, the broker uses different estimation procedures depending on the purpose, type of property (buildings or land) and the value to be sought.
The estimate can be synthetic or direct, if it makes use of the comparison of the property to be estimated with similar properties; analytical or indirect, when it estimates a property in relation to its profitability.
There are 6 estimation values:
- market value: this is the price attributed to the asset in the free market;
- cost value: assesses the expense to be incurred to produce a non-existing good or reproduce an existing one;
- transformation value: indicates the value of an asset following its transformation (less the cost of transformation);
- complementary value: this is the value of a portion of an asset, identified through the difference between the market value of the asset in its entirety and the market value of the remaining part
- subrogation value: it represents the market value of an asset capable of replacing another;
- capitalization value of future income (analytical estimate): this is given by discounting the future income that an asset can produce.
To carry out an assessment for the purpose of buying or selling a private residential property is used a synthetic estimate based on market value: the asset to be estimated is evaluated through comparison with similar assets and must take into account the actual realizable value.
A professional appraisal can never be separated from an inspection of the property. Be wary of the evaluations available in some online formats, which limit themselves to dividing market values by square meters.
The purpose of the inspection is to ascertain the consistency and condition of the property being assessed.
How is an inspection carried out? The real estate broker, using an electronic meter (ensures greater accuracy), will detect and record in a data sheet the extent of all surfaces (expressed in square meters or square yards) of the property and any appliances.
The term "appurtenances" refers to "things destined in a lasting way to serve or adorn a thing" (art. 817 Civil Code). Parking spaces, garages, cellars, attics, gardens, are appurtenances. In addition to the measurements, all the characteristics of the property must be reported in the data sheet, as we will see in the next steps.
THE COMMERCIAL SURFACE
The commercial surface is expressed in square meters and is the parameter used to calculate the market value of a property for the purposes of buying and selling. It corresponds to the total square meters of the property, including outdoor areas, attics and lofts, and is distinguished from the usable surface, that is, the area actually usable.
Although they are part of the property, the appliances affect the total commercial area but not the total floor area.
How are appliances measured?
- balconies and terraces are measured up to the outer contour;
- gardens or uncovered areas of exclusive use are measured up to the property line;
- cellars, attics or lofts are measured up to the outer perimeter walls and up to the middle of the dividing walls with common areas or other property; half a wall is also considered if these areas border on other areas of the house for different use.
The total commercial surface is that resulting from the sum of the following areas:
- covered surfaces (perimeter walls, internal area of the property);
- uncovered areas (terraces, balconies, gardens, patios, etc.);
- appurtenant surfaces (garages, cellars, etc.).
THE QUOTATION PER SQUARE METER
The quotation per square meter is the value of a property per square meter. The quotations show the values for the purposes of buying, selling and renting; they are processed by the Inland Revenue on the basis of the actual values of buying, selling and renting recorded in a given period (currently the surveys are semi-annual).
The values are shown in tables and change according to the city, zones and micro-zones, type (residential, commercial, productive) and state of the property (stately, middle class, etc.): a property located in an important city of art will not have the same value as another located in an isolated town; nor within the same city, will a property located on a main street have a higher listing than another located in the suburbs.
Even within a homogeneous area, a real estate unit located on a particular street may have significant differences in its listing compared to, say, one located on a parallel or more internal street.
THE ORDINARY VALUE
By multiplying the quotation per square meter by the commercial surface area, we obtain the ordinary value of the real estate unit.
It describes the common characteristics of the property considering the location, type and condition of the property.
Since a realistic valuation must take into account the specific characteristics of the property, in some circumstances it is necessary to make adjustments to the ordinary value.
INTRINSIC AND EXTRINSIC CHARACTERISTICS
Every property has intrinsic and extrinsic characteristics.
Intrinsic characteristics concern specific aspects of that particular property: land registry and building type; floor; conformation; exposure; luminosity; efficiency of the systems; practicability; state of maintenance.
The extrinsic characteristics, on the other hand, refer to the context in which the property is located: neighborhood, distance from the center; public services; connections; safety; healthiness of the air. The characteristics mentioned contribute to the determination of the value of the property only when they exceed the ordinary, i.e. they are not common: the presence of a terrace is an extraordinary characteristic only in those areas where buildings are on average devoid of it (for example the historical center of Rome). If we are faced with an extraordinary characteristic we will apply a corrective to the ordinary value.
COMFORTABLE AND UNCOMFORTABLE
We consider "comfortable" the positive qualitative aspects of a property: distribution of rooms, brightness, exposure.
On the other hand, the opposite aspects are "uncomfortable": degradation of the neighborhood; noise pollution; lack of parking.
Even in the presence of comfortable and uncomfortable it is necessary to correct the ordinary value through the application of some coefficients of merit expressed in percentages. Here are some examples of coefficients of merit; the signs of addition and subtraction represent, respectively, the positive or negative impact on the value of the property:
- basement (with or without elevator): - 25%
- attic floor with elevator: + 20%
- very good internal conditions (20 and 40 year old building): + 5%
- very poor internal conditions (building 20 and 40 years old): - 10%
- building in need of renovation: - 10%
- new construction: + 10%
- very bright: + 10%
- not very bright: - 5%
- autonomous heating: + 5%
- four-year rent: - 20%
- short term rental: - 5%
ADDITIONS AND DEDUCTIONS
Are additions or deductions those extraordinary features that can be directly evaluated in currency and whose value will affect the ordinary value.
The addition can be represented, for example, by a wall closet, the presence of an armored door, valuable furniture.
A typical example of deduction is the presence of a mortgage or third party rights on the property (mortgages, usufruct, easements).
In general, deductions are those legal conditions that negatively affect the property.
HOW TO CALCULATE THE MARKET VALUE
Summarizing, the calculation of the market value of a private residential property is obtained through 3 operations:
- identification of the ordinary value (value per square meter for commercial area);
- percentage corrections to the ordinary value (convenient and inconvenient);
- application of additions and deductions.
As we have seen, the valuation of a property is not limited to the mere application of a mathematical formula but is the result of a complex estimative operation, based on a rigorous method, aimed at determining the actual realizable value of the asset on the market.
For this reason, the valuation must be drawn up, preferably in written form, by a professional, or rather by a person qualified to exercise the profession.
To meet the needs of customers we have chosen to offer free valuation of the property.
Contact us if:
- you need to evaluate your property;
- you want to have a realistic reference value of the property you have chosen before submitting a proposal;
- you are interested in a real estate investment but do not know how and where to invest.