Appraising Multi-Family Housing: market value, valuation and purchase price of your property
Rate apartment buildings – If you want to sell your apartment building, one thing is important: A sound, market-oriented, realistic purchase price. The central questions of owners: What is my property worth? How do you calculate the value of an apartment building? How does the tax office determine the value of a house? Who determines the market value of a property? How does the bank value a property? Many questions and many facts that you will encounter when valuing an apartment building. To give you a first impression of the complexity of location, market value, comparative properties, building fabric & Co., we have written this guide on the subject of multi-family house valuation for you. Value factors, location, equipment, market value, realistic price: This is how you can appraise your property.
Please note, this article is written with a focus toward the German market, although very similar rules apply everywhere.
Market value: macro & micro location
The market value assessment refers to the macro location (city/region) and the micro location (immediate surroundings of the property) of the property, its section, size and any existing land charge entries that could reduce the value.
According to the German Building Code (BauGB), the market value is not a permanently fixed value, but refers to the reference date stated in the appraisal. It is possible that the market value may change significantly within a certain period of time.
Appraisal procedure: Definition of the procedures
The type of real estate determines the valuation method used for determining the market value. There are three standardized valuation methods for determining the market value of real estate: the comparative value method, the asset value method and the income value method. As a rule, at least two of these methods are calculated simultaneously.
- Comparison value procedure
- Income approach
- Asset value method
- Residual procedure
- Mortgage lending value calculation
Comparison value method
The comparative value method is often used for undeveloped land and condominiums. The land value is determined by comparing the purchase prices of similar properties.
Yield value method
The income capitalization approach is used for the valuation of leased properties, land and companies. The income generated is capitalized.
For single-family houses and condominiums, the real value is determined by means of the real value method. The wear and tear value is subtracted from the new construction costs.
The residual method is not standardized – here the maximum amount that can be invested is determined. The costs to be borne by the investor are deducted from the property sales value.
Loan value determination
The determination of the mortgage lending value is also not standardized. Banks or the banking industry generally determine the mortgage lending value of the property in order to minimize the risk when granting loans. The valuation takes into account the probability that the property can be sold safely at the mortgage lending value over a longer period of time. In most cases, 70 to 80 percent of the market value to be achieved is made available as a credit line.
Costs of an evaluation
For the calculation, a rough evaluation is first made. The price for the final valuation is therefore, in most cases, based on the estimated value of the property to be valued.
If the value of the property is below a limit of 150,000 Euros, you can expect approximate costs of 1,500 Euros. For luxury real estate or multi-family houses with a real estate value of more than 1 million, the estimated fee rises to 3,000 Euro.
- Below 150,000 Euro value, approx. 1,500 Euro
- Over 1,000,000 Euro value, about 3,000 Euro
Source: Federal Association of Experts