How to Value your Home with Accuracy

By January 19, 2009Articles

How To Value Your Own House with Accuracy

Your house or flat is only worth what someone is willing to pay for it. The market definition used by the Royal Institute of Chartered Surveyors (RICS) which all RICS qualified property valuers are a member of quote the definition of market value as:

  • The estimated amount for which a property should exchange:
  • On the date of valuation (or sale date);
  • Between a willing buyer and willing seller;
  • In an arms length transaction;
  • After proper marketing (note this would not include sale by owner or limited marketing due to a quick sale);
  • When both parties had each acted knowledgeably, prudently and without compulsion (it could be argued that a quick sale is “compulsion”)

If you are looking for a ‘quick sale’ to avoid house repossession there needs to be a suitable discount to the open market value of the property as a ‘quick sale’ breaks two of the rules above, (a) proper marketing (b) without compulsion.

1) Direct Comparison Method of Valuation – Comparing apples with apples.

Make sure you understand the RICS definition outlined above, it is tried and true and the foundation to all loan security (mortgage) valuations.

You can value your own property just as well as any other qualified valuer or real estate expert. It’s quite simple, you just need ‘comparable sales evidence’ to complete the direct comparison method of valuation.

Comparable sales evidence consists of actual sales price evidence of houses or flats which are directly comparable to your own property. The best comparable sales evidence is of property close to your own house or flat, similar in features and sold within the last month.

Clearly if you live in a development of 20 flats and 3 flats just like yours sold this month for £200,000, £205,000 and £203,000 you can quickly assume that your flat will be worth close to these figures, unless they are all on the top floor and you are on the ground floor whereby yours would normally sell at a discount to these figures, or vica versa.

For example, if you own a 3 bedroom house with a separate lounge, kitchen and one bathroom situated on 800 sq m block then look for houses situated close to yours that have recently sold with those features.

Where to find comparable sales evidence?

One of the best methods to find comparable sales evidence is to ask local real estate agents for a list of ‘comparable sales evidence’ you may have to hound them for these details but trust us, they have the details, so beg if you need to! Ask the agents for a PDF of the property to be emailed over, or check their websites and ask them what it sold for. If they don’t want to tell you or say it’s confidential, ask; was it over £200,000? Was it less than £230,000… so it was £220,000 then was it? This method works… you will get a ballpark figure. Keep humor in the game, be friendly and always thank them for their time.

You should also ask the local agents to inspect your property and get their opinion of value. Ask them for two figures, what they would market it for and what they honestly think it would sell for in the current market within a month. At this point ask them for comparable sales evidence.

Another way to find evidence is to use websites like http://www.mouseprice.com/ which show actual sale prices but quite often these websites do not have information hot off the press and usually never include a PDF outlining full details of the property.

Once you have say 10 of these comparable sales details of property in and around your area which is similar to your own property then you need to see where your house fits into the puzzle. But first query any very low or vary high sale prices as there is a usually a reason for it. Sometimes high prices are because the owner next door or the flat downstairs purchased it at a higher than market value, these are called ‘special purchaser’. Similarly very low prices could mean that the sale was between family members or maybe the lease is coming to an end.

Once you have your set of good comparable sales try and place your property between them. Ask yourself, is my place better than this one and worse than this one? This one has an extra bathroom but it’s on a main road. This house is really big but has a small backyard etc etc until you are happy that you know where your house fits and therefore what it should sell for on the open market.

2) Capital Value Per Square Foot Valuation Method

Professional builders, valuers and estate agents (well the good ones) will be able to talk to you in terms of capital value per sq ft NIA (per square foot net internal area). Sometimes builders talk about gross internal area (GIA), but usually in reference to commercial space. Area definitions: http://www.voa.gov.uk/business_rates/comp/

Now take another look at your core comparable sales and if they have floor areas written up work out how much the properties sold for on a £ per sq ft basis. So a 1,000 sq ft NIA house which sells for £250,000 is worth £250 per sq ft NIA capital value.

Sale Price /  Sq Ft  = Capital Value Per Square Foot

What is the average sale price per sq ft of your comparable sales evidence? Maybe £250 per sq ft? Be careful not to include garage and cellar space unless it’s in the same livable condition, specification and with similar access to natural light as the rest of the property. You may however assume some value to this space, 35% to 20% of the true livable spaces value on a per sq ft basis should work. For example:

Sale Price:                     £250,000

House area:                  1,000 sq ft

Cellar area:                   300 sq ft (35% of 300 sq ft is approximately 100 sq ft)

So using the above example you could assume total livable area is 1,100 sq ft. Therefore the house is worth £250,000 / 1,100 sq ft = £227.27 per sq ft capital value.

Measurement of Your Own House or Flat

Now measure your own house up with a long tape measure or use a laser measuring tool such as a Disto like the professionally do. However a normal tape measure will suffice.

Measure internal wall to internal wall making sure you include hallways. It’s easier to measure in square meters first so for example a room measuring 5.28m x 3.84m = 20.28 sq m. Then convert the square meters (sq m) to square feet (sq ft), by multiplying 20.28 sq m x 10.764 = 218.29 sq ft NIA. Add up all your rooms to arrive at a total. Note: 10.764 is the multiplier to use when converting sq m to sq ft.

Lets assume your house measures 800 sq ft NIA and you have worked out that the average house like yours, in the same area recently sold for £250 per sq ft NIA then yours should be worth approximately £200,000.   Calculation = 800 sq ft x £250 per sq ft = £200,000.

Capital Value Per Square Foot valuation method is an excellent sanity check to see if you have valued your house or flat correctly using the Direct Comparison method.

Does this value fit in with the other comparable sales? If so you can be quite confident that your house is worth approximately £200,000 if marketed correctly on the open market.

** Remember that cellars, garages and conservatories are sometimes included in sq ft area figures of sales particulars. You need to make a judgment as to the value of these features as they are cheaper to build and finish when compared to a house on a per sq ft basis. Also note that brand new houses will be worth more per sq ft than one that is dilapidated and equally a brand new built property sitting next to a newly refurbished Victorian or Edwardian building will usually be less valuable on a per sq ft basis. People usually pay more for old features, solid walls and high ceilings.

Conclusion

Once you have arrived at a value using the direct comparison method and the capital value per square foot method you should have a good idea what your property is worth in today’s market if marketed correctly.

If you need to complete a sale quickly you would have to apply a suitable discount for this situation. The quicker you need to sell the larger the discount. Think about using 20% off as a base level but offers of closer to 50% have been known to occur. Given this example your house should be worth at least £160,000 (£200,000 less 20%) to a company looking to organize a quick sale agreement.

If this value would cover your mortgage and debts and you do not have time to market the property correctly then you should consider contacting quick sale companies to see what they would offer. We also suggest contacting your local real estate agents as many have what they call ‘friends of the agency’, in reality they are local developers and investors that may be able to step in and offer a better price.

It would be great to hear from anyone who has any experience valuing their own home.