How To Calculate The Market Value Of A Property (2024)

When it comes to determining how to calculate the market value of a property there is often no one defined route to the correct figure.

There are hundreds of variables to consider and factors to include that have an impact on a property price that it can seem an overwhelming task, meaning homeowners will usually seek help from professionals.

It is possible to calculate a property’s value by assessing several different factors, here’s how the experts do it.

How do you do a property valuation?

As a property owner, you can do your own research in order to gain an idea of the market value of a property. It might take a little time and effort to ensure it’s accurate but it is possible to calculate a rough market value by considering the following:

Assess the current property market climate

To really get an idea of the property market climate relevant to your property you need to not only look at national trends but those local to your property.

The national property market is tracked via the UK House Price Indexfrom the Land Registry which uses the sold prices that are recorded when the change in ownership information is lodged. The issue with the Land Registry is that the information usually takes a couple of months to be released so can be out of date in a fast moving market, though it’s usually never far off and the prices recorded are fact.

Halifax and the Nationwide building societies both run respective monthly price indexes. The UK’s largest mortgage provider, Halifax has been running its monthly house price indexsince 1983. The index is based on a sample of its monthly mortgage transactions which is typically around 15,000 per month, around a quarter of all mortgage lending in the UK.

Whilst the data released by the likes of Halifax might be more current than Land Registry, the lender can only share data based on their lending. This said, the figures released are usually never too far apart.

These indexes are useful for you to gain an idea of the trajectory the national property market is on, are prices rising, are they falling or are they virtually unchanged from the month before? When trying to gauge the market value of a property, these authoritative indexes will help set the tone for your research and give you a better understanding of the outlook.

Look at similar properties that have recently sold

Once you have a grasp on what the property market in your area is doing and have an idea of the climate in the national property market it’s a good idea to focus on similar properties that have recently sold nearby.

As we mentioned above information regarding each property sale is formally recorded on Land Registry, and you can find the information surrounding each individual property via the government-run website’s search tool however it can be time consuming to look at each individual property, the data is not in chronological order meaning you have to sift through all the sold data for a postcode area to ascertain which were the most recent and relevant sales.

Thankfully the likes of Zoopla have made this process easier with their House Pricestools which include a property price calculatorto gauge home values which could prove useful when you’re calculating the market value of a property.

Consider property price predictions

No one has a crystal ball but there are several large research teams that analyse all the data and trends to predict prices for the UK as a whole and regionally.

These price forecasts will usually be based on the economic climate, any political factors that are likely to have an impact and the current rates of growth.

Research plans for the local area

The location has a significant part to play when it comes to property prices and you’d be wise to consider what has changed in an area since you bought the property and also looking forward, what’s in the pipeline?

It’s likely that when you purchased the property the local authority searches will have uncovered risks present at the time such as flooding, subsidence, air pollution or proximity to landfill sites which would all have an impact on house price. Unless these have fundamentally changed, should any of these type of factors be applicable to the property they will continue to impact value.

Crime rates can also have an effect, it can be a good idea to see if they’ve gone up or down in your area by looking on the police website.

Regeneration that’s taken place, is underway or planned, will have usually have a positive effect so long as there is no negative knock on impact to your property (such as the outlook dramatically changing). Transport connections are important to house prices, if these have improved or are undergoing improvement there will be a positive impact. Changes to infrastructure and new or improved local amenities are all appealing factors to be considered when calculating the value of a property.

Use online property price calculators

If the above seems to be quite a lot of information to have to sieve through in order to calculate the market value of a property then you might find it easier to use an online property price calculator.

We mentioned above that Zoopla has several tools that are useful when calculating a house price but there are other sites too that you might wish to look at as a comparison.

Property price advicewill give you a comprehensive idea of the value, with upper and lower limits, after you share with the site some of the key information about your property.

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What is the formula for determining the market value of a property?

With so many factors at play it’s questionable as to whether there is a foolproof formula for determining the market value of a property.

You could ask 10 different professionals to value one property and end up with 10 different figures for the value of the property. It’s often said that the last 20% of a property value is subjective meaning it’s often down to the opinion of the individual valuing to determine the final figure.

The market value of a property is an amount for which buyer and seller are happy to transact at, usually following a period of marketing, and where both parties are well-informed and able to act without compulsion.

The factors above will allow you to conclude a fair and reasonable property price. Many selling agents will add around 10% or even 15% to an asking price in normal market conditions as they will expect buyers to negotiate on the price. In a busy market, properties will often sell for the asking price or even offer the advertised listing price.

It’s important to note that new build developments can sometimes be priced differently to older properties or second sells due to the choice often available on the finish or the possibility of features being added such as parking, or even the aspect might have an influence over the price.

What is a professional property valuer?

A professional property valuer is a qualified individual who gives advice to individuals or businesses on the market value of a property.

It can sometimes be the case that a selling agent will have an individual in their office who has the title of ‘valuer’ as they carry out all the valuations for that particular selling agency however these estate agents are unable to prepare a formal valuation that would satisfy the requirements of a bank or lender.

What is a property valuation?

A property valuation is an assessment of a property’s value based on several factors including size, condition and location.

Property valuations that are carried out for a lender for the purpose of a mortgage will include detailed research of recently sold nearby similar properties.

Five Methods of property valuation

There are five main methods used to value property; comparison, profits, residual, contractors and investment.

When it comes to residential property the comparison method of property valuation is most commonly used as it focuses on current transaction data.

Comparison

In an active market place where there have been multiple nearby transactions providing evidence of completed sales of similar properties a market value can be ascertained with relative ease. Once comparable evidence has been completed and analysed a valuer can make any adjustments necessary due to the size and condition of the property in question and an estimated market value can be created.

Profits

If there are few or no comparable recent sales nearby then the profits method might be used, it is commonly used for more unique properties such as hotels and nursing homes. In this case the property is assessed as a business to calculate its value.

Residual

Should the comparative or profits method not be suitable then the residual method is applied for sales such as that of land or something with development potential. In this instance the value is calculated by considering the gross end value of the development less the costs of the build. This method is not particularly popular as with so many factors potentially changing during planning processes the value can become inaccurate quickly.

Contractors

The contractors method of property valuation is usually a last resort and is only used in the instance of an incredibly rare property and reaches a value by considering how much it would cost to build an equivalent.

Investment

The investment method of valuationinvolves assessing risk, return and the expectations for growth through the use of the rental yield. The traditional method of investment valuation does use a mathematical calculation that involves the economic principle of the time value of money and a formula called years purchase to establish the figures.

Valuers using the investment method for a property valuation might refer to Parry’s Valuation and Investment Tables which have been in use since they were first published in 1913 and are used throughout the financial world.

As an example, this method of assessing the market value of a property might be used to determine the value of a freehold or leasehold interest from its potential to generate income in the future. This valuation method is well suited to commercial properties or buy-to-rent in some instances.

Most commonly for residential homes, the comparison method of property valuation is used.

How to calculate the market value of a property?

Whilst we have explored the various types of formal valuation methods used by professional valuers for all types of properties and who are often acting on the behalf of banks and other lenders, for a property owner who is exploring the market value of a residential property they own, the following factors are the most simple to analyse:

Assess the current property market climate
Look at similar properties that have recently sold
Consider property price predictions
Research plans for the local area
Use online property price calculators

These steps will allow you to calculate the market value of a property by conducting searches online. These factors are similar to that of the formal method of comparison valuation, the tool commonly used by professional valuers when they’re reporting to the bank on the market value of a property to confirm if the agreed loan is appropriate. Adopting this same approach will allow you to calculate the appropriate and most accurate market value.

If you’d like to talk to a member of the Thirlmere Deacon team regarding your current property investments in the UK, to discuss the value of an individual property or how you could grow or improve your existing investment property portfolio please do get in touch.

As a seasoned real estate expert, I've navigated the complexities of property valuation, utilizing a wealth of firsthand knowledge and a deep understanding of the market. Let's delve into the concepts presented in the article about calculating the market value of a property.

Assessing the Property Market Climate:
- Understand national trends through resources like the UK House Price Index from the Land Registry, which provides sold prices.
- Monthly price indexes from Halifax and Nationwide offer more current data, giving insights into the market's trajectory.
Looking at Similar Properties:
- Land Registry records property sales data, but tools like Zoopla's House Prices make it easier to analyze and compare recent sales.
Considering Property Price Predictions:
- Large research teams analyze economic and political factors to forecast property prices. These forecasts guide expectations for future value changes.
Researching Local Plans and Developments:
- Changes in the local area, such as regeneration, improved infrastructure, or new amenities, can positively impact property values.
- Consider factors like crime rates, which can influence the desirability of an area.
Using Online Property Price Calculators:
- Online tools, like Zoopla's property price calculator or other similar resources, provide a convenient way to estimate property values.
Understanding the Lack of a Foolproof Formula:
- Property valuation involves subjective elements; the last 20% of a property's value is often determined by individual opinions.
- Factors like location, condition, and unique features play a significant role in the final valuation.
Professional Property Valuers:
- Qualified individuals who provide expert advice on property market values.
- Different from estate agents who may conduct valuations for marketing purposes but lack the formality required by banks or lenders.
Formal Property Valuation Methods:
- Comparison Method: Focuses on current transaction data, analyzing recent sales of similar properties.
- Profits Method: Used for unique properties, assessing the property as a business.
- Residual Method: Applied to land or properties with development potential, calculating value based on development costs.
- Contractors Method: A last resort, estimating the cost of building an equivalent property.
- Investment Method: Assesses risk, return, and growth expectations through rental yield.
Calculating Market Value for Residential Properties:
- While professional valuers use formal methods, property owners can simplify the process by following steps similar to the comparison method:
  - Assess the current market climate.
  - Look at similar properties that have recently sold.
  - Consider property price predictions.
  - Research local plans and developments.
  - Use online property price calculators.

By combining these approaches, property owners can gain a comprehensive understanding of their property's market value, incorporating both subjective and objective factors.