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Residential Valuation: The Price of Home

Colliers REview Singapore blog - CIVAS residential valuation what affects price of home 941x627

As successful investor Warren Buffet said, “Price is what you pay. Value is what you get."


To this end, the price of a residential property and its value are not necessarily the same thing. It is important for buyers and sellers to know the market value of a property as a first step towards getting the best price for the asset.

Why do you need valuation?

Typically, valuation is mostly required by sellers and prospective buyers of residential properties as well as banks. With a valuation report from professional appraisers, potential buyers can ascertain the “fair value” of the property and in turn, not overpay for it. Meanwhile, potential sellers can better price their homes to the market rate. Banks can also refer to these independent valuation reports in managing the financing needs of their clients.

 

"Many homeowners have the perception that having spent a substantial amount of money renovating their house would translate into a higher value for their property. This is not necessarily true."

 

The most widely used valuation method to determine the current market value of residential properties is the Comparison Method. In this approach, a valuer will analyse and study recent sale transactions of comparable properties in the vicinity or in similar standard localities. The data and information gathered will then be used to appraise the value of a given residential property, factoring in the necessary adjustments.

Factors that could affect your property's value

Location is a key determinant of property value, but there are other factors at play as well. Adjustments in value are made for differences in property age, land tenure, floor level, view from the unit, size, condition of the property as well as the standard of finishes, amongst other things before arriving at the market value of the property. Depending on how the property is rated across the factors, the variance in value is typically within a 10% range.

Many homeowners have the perception that having spent a substantial amount of money renovating their house would translate into a higher value for their property. This is not necessarily true. What constitutes an attractive interior design is subjective. In addition, a unit that is renovated in say, mid-century modern style, may not be something that a buyer would fancy several years on. The value is also dependent on when the renovation was done; a unit that was renovated extensively 10 years ago for example could be worse for wear today if it was not well-maintained.

Based on our experience, what really helps to preserve the value is the state of the property. Keeping the unit in tip-top condition is key.

Valuation process

To carry out a formal valuation, a valuer conducts site inspection and will assess the interior of the property. During the inspection, the valuer will take note of the finishes and fittings - basically whatever that is attached to the property – including built-in wardrobes, kitchen cabinets, air conditioning units for instance.

For landed properties, if floor plans are not provided by the owner, the valuer will need to measure the entire premises and make an estimate of the floor area. For apartments with private enclosed space (also known as patio or garden space) or roof terraces, it will be necessary to estimate the size of these spaces so as to determine the livable space area of the property. Typically, a discounted rate will be applied to the private enclosed space and roof terrace as they are generally areas that are less utilised.

The valuer will also need to take note of the orientation of the property. A unit that faces the west means that it tends to get very hot because of the afternoon sun. Therefore, a west-facing unit will be inferior to those that are not. Likewise, the view from the unit will also affect its value. A property with a sea view or pool view or panoramic view of the neighbourhood will be superior to those without.

 

"What really helps to preserve the value is the state of the property -
keeping the unit in tip-top condition is key.
"

 

Additionally, there is an impression that the bigger the property, the harder it is to value. However, truth be told - be it a landed property, private condominium unit or HDB flat - the complexity arises when there are no comparable recent sale transactions in the vicinity. This is one of the key challenges as recent transactions help valuers compare and derive the value of a property. Without comparable transaction data, the valuer has to do put in a lot more time and effort to analyse the market to arrive at the fair market value for the unit.

There is value in Valuation

Not limited to the intended sale or purchase of a property, valuation reports are also required for other purposes such as accounting, litigation, collective sale, compulsory acquisition, etc. The valuation process for residential property for the different purposes are by and large similar, with the main difference being the basis of valuation and the degree of disclosure.

In the marketplace, knowledge is king and having a reliable valuation of an asset will help all parties make more informed decisions.

 

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Juvena Lim

Director

Valuation & Advisory

Singapore

Juvena started her career with Colliers and has over 15 years of real estate valuation experience in the Singapore property market both in the private and public sector.

Possessing a licence with the Inland Revenue of Singapore (IRAS), she provides valuation advisory services which involve carrying out inspections, preparing and ensuring a good standard level of accuracy and quality of valuation of reports of residential (public and private) properties, land, industrial properties, commercial properties for the purposes of mortgage, sale, purchase, insurance, estate duty, stamp duty, listing and compulsory acquisition.

Her scope also includes fostering existing client relationships and cultivating business opportunities for the Company. Her key clients are mainly banks and independent financial instituitions such as Citibank N.A., Credit Suisse AG, DBS Bank Limited, Overseas-Chinese Banking Corporation, Sing Investments & Finance Limited, Standard Chartered Bank and UBS AG, just to name a few.

She is a self-driven individual and has a robust relationship with her team mates and clients.  

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