Anyone looking to buy or sell a property should get its market value estimated, as this forms the basis for successful price negotiations. What property valuation methods are available, and which factors determine the value of a house or apartment?
The market or fair value is the price you could realistically receive or have to pay for a house or apartment. It is an estimated value and should not be confused with the sales value actually paid (also known as the purchase price) and the official value (also known as the tax value).
There are three valuation methods. In practice, they are frequently combined:
This involves the use of computer-assisted estimation models based on prices that have actually been paid for similar properties in the region. This valuation method is especially suited to relatively “normal” properties such as single-family homes or condominiums. It’s now become recognized as a highly reliable, accurate and affordable standard method for valuing a property. The majority of lenders use this method when issuing a mortgage: the market valued determined in this way (not the purchase price) is used as a basis to calculate the loan-to-value ratio amount. Many property valuation tools online also use this method. This enables sellers and buyers to generate an initial guideline price for a property quickly and easily. However, this method encounters problems when it comes to special properties such as villas or highly prized properties. In this instance, an on-site estimate by an expert is essential.
This method adds up the current land value and time value of the building. The time value is calculated based on the building costs for a hypothetical reconstruction of the property, minus the depreciation due to age and wear. This method is generally used for special properties such as luxury or highly prized properties. It is very laborious, and the result can be far removed from the realistic market price, as current market factors such as property demand in a given region are not always taken into account.
This method is used only for investment properties such as apartment buildings or commercial buildings. With this method, the expected rental income is the determining valuation factor.
The market value of a property depends on dozens of factors. The hedonic method, for instance, comprises around 70 individual factors. Roughly speaking, factors are classified as either location or property factors. Here is an overview:
The living space comprises the habitable space of the whole interior in m².
As a rule, the market value forms the basis for negotiating the sales value. This means that the two values may be the same, although they don’t have to be. The final sales value, however, is the result of negotiations between buyer and seller, which may deviate from the estimate under certain conditions.
Important information: for the lender, it is the market value and not the sales value that forms the basis for calculating the mortgage amount. As the buyer, this means that you should not pay more than the market value wherever possible. Otherwise, you will have to cover the additional amount with your own equity.
A valuation is highly recommended if you wish to sell your property, whether because of a move, a separation, or because you want to dispose of an inheritance.
As a potential buyer, you would also do well to find out the value of your desired property to be well prepared for the price negotiations.
Even if you have no plans to sell your house, it’s advisable to have its value estimated from time to time. This is especially true if you have had renovation or refurbishment work done that enhances its value. After all, an increase or decrease in value will also have an impact on your overall financial situation and potentially on your amortization obligations with the bank.
The second mortgage can be amortized directly or indirectly. “Directly” means making regular payments towards the mortgage, which decreases the mortgage amount. “Indirectly” means paying into a retirement solution under pillar 3a, which is used only when this pillar is withdrawn to pay off the mortgage debt. In other words, the mortgage remains just as high until it is paid off.
