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Sunday, March 30, 2008

Getting proper property valuation

If you were getting your house sold, you’d most probably be getting it valued.
Or perhaps you need to get a loan from the bank. Or maybe the authorities are buying up the land on which your house sits, and you’re not satisfied with the amount awarded as compensation.

“Property valuation is done for various purposes, most commonly for loan financing. Besides that, properties being auctioned by banks need to be valued too, to establish the reserve price,” says Low Khee Wah, valuation assistant manager of Henry Butcher Malaysia Sdn Bhd.

Low: Valuers need to understand the market

What is property valuation? According to C Y Lim, general manager of City Valuers & Consultants Sdn Bhd, it is “the art and science of estimating the value for a specific purpose of a particular interest in the property at a particular moment in time, taking into consideration all the underlying economic factors of the market, including the range of alternative investments”.

Lim: Art and science of estimating the value

Henry Butcher’s Low elaborates: “It is an art because valuers need to understand the market, they need to have a “feel” for it, and which is acquired the longer the valuer is in the industry. It is also a science, because formulas are needed to do cash flows.” In short, property valuation is to estimate the value of the property for a specific purpose.

There are five methods used to value property: comparison method, investment method, residual method, profit method, and cost method, and each method has its specific use. According to Low, the investment method is usually applied for the valuation of office towers, shopping complexes and plantations, while development lands are usually valued with the residual method. Profit methods are used for hotel valuations, and detached factories would be valued with the cost method.

“Different valuations are done with different methods for different types of properties, the most common being the comparison method, which is used for the valuation of residential properties,” says Low. This approach compares a property with similar properties that were either transacted recently, or listed for sale within the vicinity or other comparable locations.

“The valuation process takes about 10 working days for a residential property. Nowadays, it is quite fast with the help of technology, since everything is computerised,” says Low. If there are hiccups within the process, such as not being able to contact a client, it might take longer. For a corporate office, the process could take three weeks and for big corporate exercises, it could take about a year.

When a property is valued, several factors are considered for adjustment. The first is the location, both specific and overall. The specific location would be the address, and the overall location being the surrounding area or the neighbourhood. “The condition of the property is important as well. Valuers will check for any visible defects such as cracks, leakages and termite infestations,” says Lim of City Valuers & Consultants, adding that house owners getting their property valued should fix all visible defects prior to the inspection date. “Try to clean your house and arrange it in such a way that it looks spacious during the inspection,” he advises.

In general, renovations and extensions that increase space would add value to a property, provided that the quality is good. Other factors taken into account would be the tenure, accessibility, shape of land, land terrain, land size, renovations and extensions done to the property. All things being equal, a property on the top of the hill is most likely to be worth more than a property at the bottom of a slope, says Lim.

“Common sense tells us that a house on higher ground would be naturally more secure than a house which you can look into from the road,” he explains.

“In past experiences, properties located at T-junctions don’t sell as well as others. Imagine that your house is located at a T-junction; it would be inconvenient and there would be no privacy. Some may call it feng shui, but it really is just common sense,” says Lim. “In particularly Chinese
areas, feng shui would matter a lot more.”.

In addition to the above, valuers would consider economic and legal factors too, says Lim. “Demand and supply, economic cycles, special growth areas and changes in land use patterns all affect the value of property. The tenure of the land, restrictions and conditions of the land title as well as legal encumbrances such as squatters are considered too,” he elaborates.

Having considered all of the above factors, valuers will then arrive at the value of a property. “It may appear simple when an experienced valuer is at work, but this is only because he had previously gone through all the processes of training and is now so familiar with the job that it appears simple and rapid,” says Lim, who has been in the industry for 17 years.

According to him, the mathematical contents of a valuation will be very simple, but the art of expressing an opinion in mathematical form is complicated and only comes with experience.

“We must also understand that there is no such thing as ‘the value’ or a specific value,” says Lim. There is always a range of values, he explains. “There are also many misconceptions when it comes to property valuation. Prices in newspaper advertisements and listings do not reflect the going rate, rather these prices are indications of how much owners think their homes are worth. And of course, as a home owner, you would like to believe that the highest value is the value of your home,” he says.

“The problem with speculating prices is that the professional is often ignored, especially in local areas. People tend to think that they know the market very well especially if they live in that area, but no two properties are the same,” says Lim.

For example, a property near Mont’ Kiara would not necessarily appeal to expatriates the way a property located within Mont’ Kiara does.

Henry Butcher’s Low says that most valuers work in specific locations, as it would help them understand the market in the area better, which in turn would make the process of valuation much smoother.

Low advises anyone who wants to get property valuation done, to approach a respectable valuation firm. “Besides valuing property, they do provide advice as well,” he adds.

By theSun (by Yeong Ee-Wah)

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