Investment property valuation is arguably the most important skill that you can learn in property investment.
Knowing how to value property can make or break deals. It can make or break your property business.
Making the wrong call on a property valuation can lose you serious money.
I know. I've been there!
You soon learn that your well-researched opinion of property value can be more accurate than the opinions of property professionals that you may ask.
Investment property valuation is part of a wider topic of "property due diligence".
Due diligence refers to the property investment research that you should carry out before you make the decision to invest. Other aspects of property due diligence are covered -- along with how to gauge the rent of a property -- in our separate rental property valuation guide.
Before we go any further, exactly what is the "value" of a property? It is the amount that exactly one buyer is prepared to pay for it.
For example, thousands of people might be prepared to pay £1,000 for a particular property. Only three people might be prepared to pay £90,000 for the same property. But if just one person is prepared to pay £103,650 for it, then that is it's value. Put simply, the value is set by the market.
The most accurate representation of a property's value is given by comparables, or "comps". Comps are prices that similar -- that is similar spec, location and condition -- properties have sold for recently.
Notice I said sold there, not advertised... This is a crucial difference -- one that you forget at your peril!
Sites like OurProperty.co.uk, nethouseprices.com and MousePrice.com (I find the former easiest to use) give actual sold price information that is searchable by street and postcode.
The problem with this info though is that the property type and number of bedrooms -- or condition for that matter -- is not recorded. This means that in streets where there are mixed housing types, it can be difficult to know if you're comparing apples with apples. Cross-referencing with Google street view can give you more confidence with this.
You can also use this data to find out what the seller paid for their property and when. This is a very useful indicator of current value.
(Note that at the time of writing, for reasons unknown to me, sold prices do not seem to be available for Northern Ireland.)
Check the likes of Rightmove for an indication of what you might be up against were you to list a property for sale the area.
But proceed with caution!
These are not prices that properties will eventually sell for... they are prices that owners and estate agents hope they will sell for.
If you can't find the comp you're looking for on typing in the postcode, use the Search radius selector on the left to increase to ¼ of a mile and so on until you hit something. Remember that the further away you go, the less accurate the comp will tend to be.
The Rightmove "Price Comparison Report" feature is handy as it compiles current listings, withdrawn listings (were they overpriced?) and actual sold prices.
Although most properties for sale these days can be found on Rightmove, other portals worth checking are findaproperty.com and zoopla.co.uk. Primelocation.com has more high-end listings. If you're researching Scotland, GSPC.co.uk and ESPC.co.uk can be useful too.
Zoopla.co.uk has a pretty cool property valuation tool. Well, cool in theory anyway...
In practice it can be wildly inaccurate so do take its output with a pinch of salt. I still like to throw it into the mix when valuing property though as it can sometimes back up a valuation if comps are thin on the ground.
Interestingly though, Zoopla is slowly but surely gathering data on numbers of bedrooms, reception rooms and bathrooms for pretty much every property in the country!
This is absolute gold when you cross reference it to the actual sold prices from the sites above. Do remember that this data is submitted by the general public and probably not audited.
Zoopla also stores historical sales schedules for properties that have been listed for sale on its site -- also very useful.
Once you have arrived at your own investment property valuation, it can be helpful to call around two or three local agents to get their opinion.
Agents can be cagey, though, unless you're booking a valuation appointment so the best approach is to pretend you are looking to buy in the area and ask what you'd expect to pay for the type of house you are valuing.
Hometrack is an independent property analysis firm that maintains an index of UK house prices. They have paid-for valuation services, although I have not used them myself.
House.co.uk has a lot of interesting house price stats, split by geographical area.
You have to be very careful with comps in an area that you are not familiar with. Here are a few gotchas to look out for whilst carrying out your investment property valuation:
I hope this has given you a better idea of how to value property... Use all the above sources to distill down to a valuation that you feel confident with.
Always err on the side of caution!
(The UK professional body for surveyors and valuers is RICS.)