REAL ESTATE VALUATION METHODS

Whether you are a seller or a buyer, knowing the market value of a property is essential to ensure that you obtain a sale price adapted to the reality of the real estate market. Relying on the value determined by the municipal assessment is unfortunately not enough. Depending on the situation, you can rely on the analysis of your real estate broker, or you will have to use the services of a certified appraiser. Whichever expert is chosen, he will rely on one of the three real estate valuation methods recognized in Quebec: the comparable method, the cost method, and the income method. Here's what you need to know about each to understand how your property's value will be assessed. Comparable: the most common property valuation method The market value of a property is defined as the most probable price that it is possible to obtain, on a given date, on a market open to competition and where each party is correctly informed. The method most used to determine this value is the comparable method. This is the best way to produce an analysis simply and quickly. It consists of comparing the property to be valued with other properties of the same type, recently sold in the neighborhood or municipality. By assessing certain criteria, the chartered appraiser or the real estate broker will target comparable properties for the assessment. From a selection of three to ten buildings, it will be possible to make an estimate based on the sale prices observed. Here is a list of characteristics that will be analyzed to select the comparable: • the year of construction. • land area and living area. • the number of rooms and the number of floors. • the presence of a swimming pool. • the quality of the finishes. • the presence of a garage. • the exterior condition of the property. As two properties are very rarely identical, it will be essential to adjust, determining the contributing value of each of the characteristics. These defined amounts will be added or subtracted from the comparison price to bring the comparable down to the level of the property being appraised. For example, if the house selected as comparable has a garage and yours does not or, conversely, if your house has a swimming pool but the house selected as comparable does not. Once this operation is completed, it will be possible to average the selling prices to determine the market value of the assessed property. The comparable method has the advantage of being based on the reality of the real estate market. It provides direct proof of market value. It is particularly used to assess the value of properties for residential use or vacant land. The cost method It happens that certain types of properties are too rarely sold in the targeted sector to be able to apply the comparable method. In this case, the appraiser may use the cost method. This is a three-step process for obtaining an overall assessment: calculating the value of the land. the calculation of the replacement cost new of the buildings or of any taxable element. the deduction of depreciation due to age and other conditions that may affect the value of the property. Unlike the comparable method, the cost method provides so-called indirect evidence of the value of a property. This method is little used and very rarely concerns buildings owned by individuals. Appraisers use it to appraise commercial, industrial, or special-purpose buildings. This method is also used in the context of valuations of heritage buildings.

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