Valuation Methodology for e-valuations in the UK
April 18th, 2007This is a summary of the methods used during the valuation process. e-valuations uses the “Comparative Sales Method” for all of the valuations that are produced. This method estimates a value of a house by comparing the value similar properties that are for sale or have recently been sold in the same general area. There are 3 different sources from which e-valuations obtains and compares information about property values. These 3 sources are:
1) The value of actual property transaction as reported by the Land Registry
2) The value of the opinions of all of the local Estate Agents that were surveyed
3) The value of similar houses currently for sale in the area
Each of these independent sources of information will, alone, provide an estimate of value. By combining all three sources, e-valuations is able to provide a significantly more accurate indication of the value of a property. This figure is determined by averaging the three separate sources to reach a balanced and more informed value. The average is then adjusted to account for any unique features or characteristics that may be found at a specific property.
Land Registry London Office Image courtesy of HM Land Registry Wikipedia Entry
Source 1: Actual House Prices
-Advantages: This source can be thought of as the most dependable. The Land Registry records the date and the sales price for every property transaction in England and Wales.
-Disadvantages: The prices that are recorded only represent a snapshot in history of the property market. The property market is prone to fluctuations in value and a price that was recorded, say, 6 months ago, does not necessarily represent the price that someone would pay for it today.
-The e-valuations compromise: The fluctuations of the property market are reported by the Land Registry every 3 months on a postcode sector basis. These localised fluctuations are tracked by e-valuations and the data is inserted into our mathematical formulas that produce a projected estimate of “today’s value” for any individual property that has been sold in the last 3 years.
Source 2: Local Estate agents opinions
-Advantages: Each community has it’s collection of local Estate Agents. They have first hand experience in dealing with all types of properties within the catchment of their high street office. They are aware of recent market trends and also the current state of the market. They know the hot spots as well as the “not-so-hot” spots.
-Disadvantages: In some situations, the interests of an Estate Agent may conflict with the interests of someone who is trying to sell their property. For example, when an Estate Agent is invited to value a property, the agent may inflate their own valuation in an attempt to impress the person selling the house, and hopefully gain a new customer.
-The e-valuations compromise: As a professional valuations company, e-valuations is able to approach the local Estate Agents and discuss property values objectively and without any undue sales pressure. By speaking with a range of selected agents, e-valuations is able to form a “consensus of value” by tapping into to the wisdom of crowds.
For Sale Boards Image courtesy of moonpie’s Flickr Photo stream
Source 3: Similar houses for sale
-Advantages: This is the most up to date reflection of the current market conditions. If asking prices are higher than recently sold properties, then (obviously) the market is rising and the value of your property should reflect this trend. If the asking prices are lower than recently sold properties, then the market is falling and the value of your property should reflect this trend.
-Disadvantages: Anyone may set the asking price of their property to any value that they want. Their is no limit and there are no rules. This creates a situation where many sellers, first, “test the market” by asking a higher price than what they expect to achieve. “Testing the market” distorts the actual strength, or weakness, of the current market.
-The e-valuations compromise: The ratio of asking price to the amount of the accepted offer is a good indicator of the current state of the market. When e-valuations presents the data for properties that are currently for sale in the report, an adjusted figure is also presented to compensate for the tendency to over value properties. This adjustment varies from region to region, but it is consistently between 1% to 7% below the asking price
Adjustments
Every property is unique. Location, number of bedrooms, type of property and condition are only a few of the many variables utilised to classify property. A two bedroom flat in London cannot be compared to a four bedroom bungalow in Lincolnshire. e-valuations seeks to compare properties using an “apples to apples” approach. When e-valuations is unable to find a comparative property, or when there is a feature in your property that is completely unique, an adjustment to your property will be utilised. These adjustments, positive or negative, will be based on the special feature.
For example, if your property has a driveway with off street parking and every other house on your street has to park on the street there will be an adjustment made to the value of your property to reflect the added benefit that your property has to offer. Conversely, if your property has a feature that is undesirable and the rest of the nearby properties do not have that particular feature, an adjustment will be made to the value to reflect the undesirable feature.
Valuation Result
A property’s value is almost entirely determined by the values of the properties that surround it. That is why e-valuations is able to provide a valuation for your property without ever seeing it. By using multiple sources of available property data, e-valuations has created the most comprehensive and informative residential property report available on the market.
The result of the valuation has been arrived at using the three components of the valuation. Each of these components is described and presented in abundant detail throughout the report. e-valuations averages the three sources of data and then applies the adjustment to determine the valuation for your property.
