The valuation of real estate is a theme that is surrounded by myths and erroneous propositions such as “a property will always have a high valuation” or “location is all that matters when evaluating a property. To clarify possible doubts and to demystify the process of property valuation, Blue world city have prepared this article. In it you will find the definition of real estate valuation, the factors that influence it and the real estate valuation indexes. Check out!
What is real estate valuation?
The valuation of real estate deals with the process in which the market value of a property, whether for commercial or residential developments, increases when compared to the initial value. There are several factors that cause this valuation, such as changes made in the structure of the property, market conditions, supply and demand for properties in the region and even the appreciation of their surroundings.
Many believe that the appreciation of real estate is constant, however, there may also be a fall in prices. This happens precisely because these values are established by the market. The decrease in the supply of real estate in a given region or the increase in demand for it, for example, can cause prices to rise. On the other hand, the increase in the offer of units for sale or a lower demand causes a reduction in values.
Another factor influencing the appreciation of residential properties is the availability of support infrastructures. They contribute to the increase in the value attributed to the residence, and can be points geared towards transportation, leisure and the offer of products and services such as pharmacies and supermarkets.
Faced with so many possibilities, knowing the real estate valuation indicators is very important.
Property valuation indicators
To assess the value of a property, we need to evaluate its value in the market against the value of its acquisition. This can be done through a real estate appraisal report. Therefore, it is necessary to have a price history to check if there was an appreciation or devaluation. In addition, we can assess some points that directly influence the valuation of a property:
Most experts in the real estate market point to location as the main factor in pricing a property. It is very common for structurally similar properties to have different prices depending on their region. In other words, an apartment located in a neighborhood considered more upscale will present a higher value than other regions, even if it has similar lengths, structure and finishes. However, it is also important to take into account the potential of an area, the growth of the city and where it is headed.
A common mistake when it comes to real estate valuation is to confuse location with infrastructure. For this second item we refer to the existence of commercial establishments and services that attract owners, that is, that make the place prone to occupation. For example, for commercial real estate it is interesting that there are restaurants and cafeterias in its surroundings, since workers will look for these services. For residential properties, residents seek comfort for their activities, such as supermarkets, pharmacies, parks and gyms.
The big point for this issue is that these establishments can close over time, changing the infrastructure of the place and therefore should not be confused with location.
One of the major challenges in urban areas concerns mobility. Precisely for this reason, the easy access to shopping centers and main points of a city also determines the appreciation of real estate. We can cite traffic as one of the villains of quality of life and, therefore, access routes and easy public transport must be taken into account. Metro stations are highly valued today as it is the fastest and most accessible form of public transport.
Although crime rates are correlated with the location of a property, it is important to assess security as another item. Regions with constant policing are considered safer and therefore are also in greater demand. In addition, locations with a 24-hour monitoring system and condominiums with entry and exit control also value the property’s pricing.
Along with the location, the conditions of a property are the most obvious point to be taken into account when pricing a property and projecting its valuation. For this we need to check the size, number of rooms, if we talk about a new property or that needs renovations, in addition to the materials used in construction and finishing. Generally, new properties are more in demand than old ones, because it is understood that without former residents this type of residence requires less repairs.
Real estate market
The real estate market dictates and regulates the valuation of properties. If there is a high demand for new homes and the number of properties available is lower, the value of the property tends to increase. In other cases, the appreciation of a region can trigger the appreciation of residences. This is the real estate market regulating its values. The reverse can also happen, when there are few buyers and many properties available, the owners need to work out their values and payment terms.
Possibility of changes
Widely used in the purchase of real estate in the plant, this factor needs to be analyzed because construction can take years. With that, the region can be changed and consequently valued with the construction of shopping malls, gyms and markets. On the other hand, if the buyer purchases a property that is already ready, but that allows changes in its structure, such as the inclusion of other floors, there is also the possibility of appreciation.
Following the same reasoning, properties that do not allow changes tend to increase more slowly. In addition, buyers avoid this type of property because it is more difficult for it to suit their needs and expectations. When we think that it is practically impossible to find a residence exactly as we dream, the possibility of a renovation is quite attractive.
When we are going to evaluate a property, we need to analyze the whole set. Just as the establishments in the vicinity are important, the neighborhood should also not be overlooked. With this, it is necessary to analyze not only the profile of the residents that surround the property, but also the type of construction, with its good quality materials.
Properties with good insertion of technological items tend to be more valued. Some basic items that we can mention in this case are, an electronic gate in the garage and the concierge, in addition to cameras that integrate a security system. Newer properties tend to come equipped with these features, they tend to have a higher value when compared to older properties that do not have these availabilities.
Residential property valuation index
Another indicator of price variation is the residential property valuation index. These indexes group data from segments of the real estate market and can serve as a reference for negotiations in the sector. We can mention some indexes such as:
- General Commercial Real Estate Market Index (IGMI-C): calculated by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre / FGV). It seeks to indicate the valuation and yield of applications related to commercial real estate. It is based on information from market participants such as consultants, administrators and real estate portfolio managers.
- General Real Estate Price Index – residential (IGMI-R); Also calculated by Ibre / FGV, it has a partnership with the Brazilian Association of Real Estate Credit and Savings Entities (Abecip). For this indicator, we are talking about residential properties and their variation is based on the price of property reports financed by banks.
- INCC (National Civil Construction Index): created to measure construction costs across the country, the INCC was first published in 1950. Monitoring the evolution of this index is recommended mainly for those looking to buy a property in the plant. This is because the INCC is widely used as a monetary correction index for the amount to be paid as the property’s entry into the plant.
- IVG – R (Guaranteed Residential Property Securities Index): this index is calculated by BACEN (Central Bank of Brazil). It serves to measure the trend of prices of residential properties in the country.
- Consumer confidence: the consumer confidence index is also called the Consumer Expectations Survey and aims to capture consumer sentiment in relation to the general state of the economy and personal finances. Also calculated by FGV, this index can determine whether there will be a high demand for the market. This is because, when consumer confidence is high, it is a sign that there will be greater demand, which tends to put pressure on the prices of consumer items, implying higher inflation rates.
- IPCA (National Consumer Price Index): measured by the IBGE, it is one of the most important indices in the country as it serves as an indicator of inflation in Brazil. A high IPCA means high inflation, which means that prices are skyrocketing month by month.
- SELIC rate (Special System of Settlement and Custody): it is the average rate that the government pays interest for federal securities. Its interference in the real estate market is linked to the fact that this rate serves as a reference for all interest rates, including interest on financing.
How to know the value of a property in practice?
To define a property’s value, it is necessary to take into account several factors that can influence its pricing, such as location, infrastructure, security and the real estate market itself. Therefore, the ideal is to seek the help or advice of a professional to carry out the evaluation of the property. In addition, you can search for your property on our reliable and secure website.