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Private Construction Property Valuation Steps
A comprehensive property valuation is crucial for any private construction project. It serves not only as a basis for financing but also for planning and budgeting. Do you need assistance with the valuation of your land? Contact us for a non-binding consultation.
A professional property valuation is the first and most important step for any successful private construction project as it forms the basis for financing, purchase/sale, and tax aspects.
The choice of the correct valuation method (comparative value, capitalised income, or intrinsic value method) depends on the type of property and the purpose of the valuation. A correct application can improve the accuracy of the valuation by up to 8%.
Infrastructure improvements and an attractive environment can significantly increase the value of a property. Taking these factors into account during evaluation can lead to an increase in value of up to 15%.
A solid property valuation is the first and most important step for any successful private construction project. It forms the basis for financing, purchasing or selling, and also has tax implications. But what steps are necessary to accurately determine the value of your property? This article guides you through the process and shows you how to avoid pitfalls.
Definition and importance of property valuation
Property valuation is the determination of the market value of a property at a specific reference date. The market value, also known as fair value, is the price that could be achieved in normal business transactions, taking into account all factors affecting value. An accurate valuation is essential for various reasons:
Why is property valuation important?
Financing construction projects: Banks and financial institutions require a solid valuation as a basis for lending. An overestimated value can lead to financing problems, while an underestimated value can restrict your options.
Buying and selling decisions: A realistic valuation helps buyers and sellers negotiate a fair price. It protects against overvaluation or undervaluation and ensures transparency.
Tax considerations: Property valuation is relevant for calculating property transfer tax, property tax, and inheritance tax. A correct valuation can help you avoid unnecessary tax payments.
Legal framework in Germany
Property valuation in Germany is subject to strict legal regulations. The most important laws and ordinances are:
Building Code (BauGB) and Valuation Ordinance (WertV)
The Building Code (BauGB) regulates the use of land for construction and establishes the basis for valuation. The Valuation Ordinance (WertV) specifies the procedures for determining the market value and defines the requirements for appraisals. The land policy of the Federal Ministry of Finance plays an important role in this context.
Relevant standards and guidelines
In addition to the laws and ordinances, there are numerous standards and guidelines to consider in property valuation. These include, among others, the ImmoWertV (Real Estate Valuation Ordinance) and the NHK 2010 (Normal Construction Costs 2010). These regulations ensure a consistent and comprehensible valuation practice. Our page on property valuation offers further information.
Thorough preparation is crucial for an accurate property valuation. This includes determining the purpose of the valuation and gathering all relevant documents. Only in this way can you ensure the valuation meets your individual needs and requirements.
Determining the Purpose of Valuation
Before starting the actual valuation, you should be clear about its purpose. This affects the choice of the appropriate valuation method and the focus of the analysis.
What Question Should the Valuation Answer?
Do you want to determine the value of your property for sale, apply for financing, or clarify tax aspects? Depending on the question, different aspects are relevant. A clear definition of the purpose helps you stay focused and gather the right information. The increase in property value can be an important factor.
Defining the Valuation Date
The valuation date is the point in time to which the value assessment refers. This is particularly important because market conditions and prices can change over time. The valuation date should be clearly defined and documented in the report.
Gathering Relevant Documents
For a comprehensive property valuation, you need a variety of documents. These provide insights into the property’s characteristics, the structural conditions, and any encumbrances.
Land Register Extract and Cadastral Map
The land register extract contains information on ownership, encumbrances, and restrictions of the property. The cadastral map, also known as the parcel map, shows the exact location, size, and shape of the property. These documents are essential for the valuation.
Building Plans and Description
If a building already exists on the property or a new one is planned, the building plans and building description are important sources of information. They provide details about the size, construction method, condition, and features of the building. This information is crucial for determining the building's value.
Contamination Register and Soil Report
The contamination register provides information on whether the property is affected by contamination. A soil report examines the soil composition and indicates potential risks. Contamination can significantly reduce the property's value. Please refer to our notes on land contamination issues.
The choice of the appropriate valuation method depends on the type of property, the purpose of the valuation, and the availability of data. Generally, three methods are considered: the comparative value method, the income value method, and the replacement cost method.
Comparative Value Method
The comparative value method is based on the principle that the value of a property corresponds to the value of similar, recently sold properties. This method is particularly suitable for undeveloped land or residential property where sufficient comparable data is available.
Application and Requirements
The comparative value method requires that there are comparable properties near the property to be valued, which have been sold in recent years. The comparable properties should be as similar as possible in terms of location, size, layout, development, and use. The sale prices of the comparable properties must be known.
Determination of Suitable Comparable Properties
The identification of suitable comparable properties requires thorough research. Valuers rely on databases, transaction price collections, and their own experience. The sale prices of the comparable properties are adjusted to the specific characteristics of the property being valued to determine the market value.
Income Value Method
The income value method is primarily applied to rented or leased properties. It is based on the assumption that the value of a property corresponds to the present value of future income. This method is particularly suitable for apartment buildings, office buildings, or commercial properties.
Application for Rented or Leased Properties
The income value method requires that future rental income and operational costs can be reliably forecasted. The rental income is reduced by management costs and the risk of rent defaults to determine the sustainably achievable income. This income is then discounted to the valuation date using a capitalisation rate.
Calculation of Sustainably Achievable Income
The calculation of sustainably achievable income requires a detailed analysis of tenancy agreements, operational cost statements, and market development. The capitalisation rate is determined based on the yields of comparable properties and the general interest rate level.
Replacement Cost Method
The replacement cost method is applied when the comparative value method or the income value method is not suitable. This is often the case with owner-occupied or hard-to-compare properties. The replacement cost method is based on the sum of the land value and the building replacement cost.
Application for Owner-Occupied or Hard-to-Compare Properties
The replacement cost method is particularly suited for single-family homes, villas, or specialised properties for which there are no comparable objects. It is also used when the focus of the valuation is on the tangible value of the building.
Determination of Land Value and Building Replacement Cost
In the replacement cost method, the land value is first determined. The building replacement cost is then calculated by reducing the building construction costs by the depreciation due to age. The land value and the building replacement cost are then added to obtain the provisional replacement cost. This may be adjusted for market conditions.
The actual valuation requires a detailed analysis of the property and the building. Various factors are considered, such as location, layout, condition, age, state, and building substance.
Determining the land value
The land value is the value of the undeveloped plot. It is generally determined based on standard land values published by municipal expert committees.
Consideration of location, layout and condition
In determining the land value, the specific characteristics of the site are taken into account. These include location (e.g. proximity to the centre, residential location, commercial area), layout (e.g. rectangular, irregular) and condition (e.g. flat, sloping, soil quality). These factors can significantly impact the land value.
Application of standard land values
Standard land values are average location values for plots in a particular region. They serve as a guide in property valuation. The standard land values are determined by expert committees and updated regularly. It is important to note that these values are only guidelines and must be adjusted to fit the individual circumstances of the property.
Determination of building value (if relevant)
The building value is the value of the building excluding the plot. It is calculated based on the construction costs of the building and age-related depreciation.
Consideration of age, condition and building substance
In assessing the building value, the age, condition, and building substance are considered. An older building requiring renovation has a lower value than a new building in good condition. The building substance (e.g. solid construction, timber construction) also influences the value.
Application of normal construction costs (NHK)
Normal construction costs (NHK) are average costs for erecting a building of a certain construction type and specification. They form the basis for calculating the building's value. The NHK are published and regularly updated by the Federal Ministry for Housing, Urban Development and Building.
Consideration of rights and encumbrances
In property valuation, rights and encumbrances that can affect the property's value should also be considered. These include living rights, usufruct rights, right of way, land charges, and mortgages.
Living rights, usufruct rights, right of way
Living rights and usufruct rights entitle a person to live on or use the land without being the owner. Right of way grants a person the right to cross the property. These rights reduce the value of the property as they limit the usability for the owner.
Land charges and mortgages
Land charges and mortgages are loans secured against the property. They represent an encumbrance on the property and reduce its value, as the buyer must take on the debts or the property is encumbered with them.
The location and surroundings of a property have a significant impact on its value. Good infrastructure and an attractive environment can increase the value, while noise and pollution can decrease it.
Impact of Infrastructure on Property Value
Infrastructure includes all facilities and services necessary for daily life. This includes transport links, local amenities, educational institutions, and leisure opportunities.
Transport Links (Public Transport, Roads)
Good transport links are an important factor for property value. Properties that are well-connected by public transport or have good access to road networks are generally more valuable than those in remote locations. The effects of transport infrastructure are substantial.
Local Amenities (Shopping, Schools, Doctors)
Local amenities such as shopping, schools, and doctors are another key factor for property value. Properties located near these facilities are generally more valuable than those where such facilities are hard to reach. Investments in infrastructure are crucial for regional economic development, as reported by Investopedia.
Leisure Facilities and Green Spaces
Leisure facilities and green spaces in the vicinity can also increase property value. Parks, playgrounds, sports facilities, and cultural institutions contribute to the quality of life and make a property more attractive.
Effects of Infrastructure Improvements
Infrastructure improvements can lead to significant increases in property values. The construction of a new underground line, the development of a shopping centre, or the creation of a park can significantly enhance the attractiveness of a location.
Potential Value Increases from New Infrastructure Projects
New infrastructure projects can improve accessibility, ensure local amenities, and enhance quality of life. This typically leads to increasing demand for properties and, therefore, higher prices. It is important to consider the potential impact of infrastructure projects when valuing property.
Consideration of Noise and Pollution
Noise and pollution can decrease the value of a property. Noise from roads, railways, or airports can affect the quality of living. Pollutants in the soil or air can pose health risks. These factors must be considered in property valuation.
Analysis of the Social Environment
The social environment of a property can also influence its value. Security aspects, crime rate, social structure, and population development are important factors.
Security Aspects and Crime Rate
Properties in safe neighborhoods with a low crime rate are generally more valuable than those in insecure areas. Security is an important factor for the quality of life and the attractiveness of a location.
Social Structure and Population Development
The social structure and population development can also affect property value. Positive population growth and a balanced social structure can increase the attractiveness of a location. The social exclusion in France shows the importance of the social environment.
The result of the property valuation is documented in a report. The report must be complete, verifiable, and objective. It should specify the methods and data sources used and justify the determined market value.
Formal requirements for a report
A report must meet certain formal requirements to be recognised as evidence in court or by authorities.
Completeness, Verifiability, and Objectivity
A report must be complete and include all relevant information. It should be verifiable with transparent presentation of the methods and data sources used. It must be objective and based on an independent analysis. Development costs must be transparently presented.
Specification of applied methods and data sources
The report must specify the applied valuation methods (e.g., comparative method, income method, cost approach) and the data sources used (e.g., land registry extract, cadastral map, standard land values). This enables the reader to understand and verify the valuation.
Content structure of the report
A report should have a clear and structured layout to ensure readability and comprehension.
Description of the valuation object
The report begins with a detailed description of the valuation object. This includes the location, size, layout, condition, and development of the property. Rights and encumbrances are also described.
Presentation of the valuation methodology
The report provides a detailed presentation of the applied valuation methodology. It explains why the chosen method is suitable and what factors were considered in the valuation.
Justification of the determined market value
The report concludes with a justification of the determined market value. It explains how the market value was determined and which factors influenced it. The valuer must present their assessment in a verifiable and convincing manner.
Quality assurance and liability
Creating a report requires high expertise and diligence. Valuers are subject to certain duties of care and are liable for errors in their valuation.
Duties of care of the valuer
Valuers have the duty of care to conduct their valuation to the best of their knowledge and belief. They must consider all relevant information, apply the methods correctly, and justify their results in a verifiable manner. Property valuation is a complex process.
Professional indemnity insurance
Valuers are usually protected by professional indemnity insurance against damage caused by errors in their valuation. The insurance covers the costs of damage regulation.
When evaluating property for private construction, certain peculiarities must be considered. Subjective factors, emotional connections, personal contributions, and individual fittings can influence the value of a property.
Subjective Factors and Emotional Connections
Unlike the evaluation of commercial properties, subjective factors and emotional connections play a larger role in the valuation of properties for private construction.
Consideration of Individual Ideas and Wishes
Buyers and sellers often have individual ideas and wishes that can influence the value of a property. A buyer may be willing to pay more for a property that meets their personal needs and preferences. These individual ideas must be considered in the evaluation.
Objective Valuation Versus Perceived Value
It is important to distinguish between objective valuation and perceived value. The perceived value is the price a buyer is willing to pay for a property, regardless of the objective valuation. The appraiser must attempt to take the perceived value into account without compromising objectivity.
Differences Compared to Commercial Property Valuation
The valuation of properties for private construction differs in some aspects from the valuation of commercial properties.
Focus on Living Quality and Standard of Living
In evaluating properties for private construction, the focus is on living quality and standard of living. Factors such as location, tranquility, safety, local amenities, and leisure opportunities are particularly important.
Less Relevance of Economic Indicators
In contrast to commercial property valuation, economic indicators play a lesser role in the valuation of properties for private construction. The focus is on the individual needs and preferences of the buyers.
Consideration of Personal Contributions and Individual Fittings
Personal contributions and individual fittings can enhance the value of a property. It is important to consider these in the evaluation.
Value Enhancement Through High-Quality Equipment
High-quality equipment can enhance the value of a property. This includes, for instance, a modern kitchen, a luxurious bathroom, premium flooring, or an energy-efficient heating system. Land development can increase the value.
Documentation and Proof of Personal Contributions
It is important to document and prove personal contributions and individual fittings. This can be done through photographs, invoices, or a detailed description. The appraiser can then consider the value of the personal contributions and fittings in the evaluation.
The valuation of real estate is subject to constant change. Digitalisation and the increasing importance of sustainability and energy efficiency are influencing valuation practices.
Digitalisation of Property Valuation
Digitalisation has also reached property valuation. Software, databases, and automated valuation models (AVMs) are being used more frequently.
Use of Software and Databases
Software and databases facilitate research, analysis, and documentation in property valuation. They provide access to a wealth of information and automate many tasks.
Automated Valuation Models (AVMs)
Automated Valuation Models (AVMs) are computer programmes that determine the value of a property using algorithms and data from databases. AVMs can provide a quick and cost-effective estimate of market value. However, it is important to note that AVMs cannot fully replace a property valuation. The development of properties is an important aspect.
Sustainability and Energy Efficiency
Sustainability and energy efficiency are becoming increasingly important in property valuation. Buyers and tenants value energy-efficient buildings and environmentally friendly materials.
Consideration of Ecological Aspects
Increasingly, ecological aspects are being considered in property valuation. This includes the use of environmentally friendly materials, the building's energy efficiency, the use of renewable energy sources, and rainwater utilisation.
Impact of Energy Performance Certificates and Incentive Programmes
Energy performance certificates provide information on a building's energy consumption. A good energy certificate can enhance a property's value. Similarly, incentive programmes for energy-efficient construction and renovation can influence a property's value.
Outlook on Future Trends
Property valuation will continue to evolve in the future. Changes in legislation, the effects of demographic change, and new technologies will influence valuation practices.
Changes in Legislation
Changes in legislation can affect property valuation. New laws and regulations can alter the requirements for assessments, valuation methods, or the consideration of certain factors.
Effects of Demographic Change
Demographic change will influence the demand for certain types of property. For example, there will be an increase in demand for accessible housing and age-appropriate properties. These changes must be considered in property valuation.
A professional property valuation is an essential step for any private construction project. It provides clarity, secures your investment, and helps you make informed decisions. Avoid risks and pitfalls by relying on the expertise of professionals.
At Auctoa, we revolutionise real estate and land valuation through the use of cutting-edge automation and AI-driven, human expertise. Our precise, certified, and market-compliant valuations offer you the assurance you need for your construction project. Whether you are a property investor, bank, estate agent, developer, or private owner – we support you with accurate and automated valuations.
The unique combination of advanced AI and experienced human appraisal guarantees the highest precision and speed in determining the true value of a property. Our fully automated valuation platforms, hybrid AI-human appraisals, digital market analyses, and comprehensive valuation reports provide you with a solid foundation for your decisions.
Invest in the future of your building project and secure a sound basis for your financing and planning. Contact us today to learn more about our services and to arrange a personal consultation. Visit our real estate valuation page and discover how we can help you determine the optimal value for your land. Register now for free and receive an initial assessment for your project. Contact us!
The Bundesfinanzministerium provides information about land policy in Germany.
Investopedia explains the term infrastructure and its importance to the economy.
The Semantic Scholar study examines the effects of transport infrastructure on property values.
SSOAR offers insights into social exclusion in France and its impacts.
Why is a professional property valuation important before private construction?
A professional property valuation provides clarity on the true value of your property, which is essential for financing, buying/selling, and tax planning.
What legal frameworks must be considered in property valuation?
In Germany, the Building Code (BauGB) and the Valuation Ordinance (WertV) are the key legal foundations for property valuation.
What valuation methods are available and when are they applied?
The common valuation methods are the comparison method (for undeveloped properties), the income method (for rented properties), and the replacement cost method (for owner-occupied or hard-to-compare properties).
How does infrastructure affect the value of my property?
Good infrastructure, including transport links, local amenities, and leisure facilities, can significantly increase the value of your property.
What role do contaminated sites play in property valuation?
Contaminated sites can greatly reduce the value of a property. A register of contaminated sites and a soil report provide information on potential burdens.
How does Auctoa consider the specifics of private construction in valuation?
Auctoa combines AI-driven analysis with human expertise to consider subjective factors and individual preferences in the valuation.
What benefits does digitalisation offer in property valuation?
Digitalisation enables faster, more efficient, and cost-effective valuations through the use of software, databases, and automated valuation models (AVMs).
How can I commission a property valuation with Auctoa?
Visit our property valuation page and register for free to receive an initial assessment for your project. Contact us for personalised advice.
