First let’s start with a definition of a valuation.
“Valuation is a process of estimation of the most probable price which would be paid for a property under typical market conditions applying at the date of valuation…”
“The value of a property is the present value of all future benefits expected to be obtained from possession of the property.”
The ability to provide a professional and accurate valuation service relies on a combination of the professionalism of valuation consultants as well as the quality of available market information.
One firm, Siam Real Estate in Phuket, Thailand, uses the ‘Market Approach’ which examines the title, state, age and condition of the property, as well as the major selling features, and compares similar properties in the area. It also takes into account current market factors, the immediate local environment and any encumbrances to arrive at a fair market price in the present market.
The valuation does not review due diligence, either right of property or access rights or title ownership. Public utilities and services are also not considered. Due diligence should be carried out by an experienced and independent lawyer.
Siam Real Estate specialises in appraisal and valuation reports covering residential properties, houses and villas, townhouses, shop houses, condominium housing development projects and apartments. It also appraises land plots using a direct comparison with similar land.
The purpose of a valuation cover things such as the current market value of the property, asset financing, rental assessments, mortgage finance, security value, divorce proceedings and any dispute resolutions, risk analysis, insurance cover and fire sale estimates.
The residential valuation model used is the ‘Market Approach’. Homes are valued based on what an average person would be willing to pay for a similar property. This data is derived by looking at current sales in Phuket.
Every attempt is made to use sales that have the same characteristics as the property to be valued, and these would include, but are not limited to, area, number of bedrooms, baths etc., whether the property has a garage etc.
If a subject property doesn’t have enough matching sales, adjustments are made to the sale properties most closely resembling that property to create a more equitable value. An example of this would be if the sale property had a swimming pool and the subject did not.
The sale price would be adjusted to reflect not having a pool.
A sale at fair market value is, by definition, the amount of money a well-informed buyer would pay and a well-¬informed seller would accept for property that has been on the open market for a reasonable amount of time, assuming neither buyer nor seller is acting under pressure.
When a sale is deemed valid it can be used to help determine fair market value for other similar properties. The goal is to value all properties fairly and equally, while being as close to fair market value as possible.
Valuation Approaches
The “Market Approach’ involves the comparison of a property with the characteristics of similar properties that have recently been sold. There is also the ‘Cost Approach’ which involves estimating the replacement cost of a structure and adjusting that estimate to account for depreciation.
Lastly the ‘Income Approach’ is an analysis of a property’s value based on its capacity to generate revenue for the owner.
The column was contributed by Richard Lusted, the Chief Executive Officer of Siam Real Estate, and edited by Andrew Batt, Group Editor of Dot Property Group. Richard has completed a Property Valuation course, run by Thai Real Estate Business School and ge is also a designee of Certified International Property Specialist, part of National Association of Realtors, and has passed extensive exams in 2006 – establishing him as one of only a handful of foreign brokers in Thailand to have received this important accolade and designation. This ensures his company remains professional and can handle international transactions.
