When it comes to offering or buying a property one of the most difficult or stressful things to decide is how much is the property worth. Seems simple, right?

Just see what has previously been sold in your local area and you should get a pretty good idea, yes? Or just get an independent survey, correct?

Well, the valuation of residential (or commercial) property is not quite that simple. If it were, there would be no need for surveyors or specialists in this field.

Questions you would probably be thinking would be, how much should you pay? Will you be wasting thousands of pounds ‘overpaying’ or offer too little and have your offer gazumped (when offering)

It’s important at this stage to note what market value is.

And although there are Five Methods of Valuation (comparable method, The Investment Method, The Profits Method, The Residual Method, & The Depreciated Replacement Cost Method ) and part of a valuers job is to know what method to use for a given property in a given market – for the purpose of this article we will focus on the Comparable’s Method – being the simplest one: what did similar properties sell for, make appropriate adjustments for differences, time, condition etc to get to an appropriate value.

This is most common on residential property.

Market value is:

The estimated amount for which a property should exchange on the date of valuation, between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

For example there might be two sales of £90k and £110k. The person paying £110k did not act knowledgeably and prudently – they paid cash and did not have a building survey so they overpaid because they did not realise the extent of the works needed.

The person paying £90k underpaid because the property was not properly marketed. When valuing property you have to try to understand as much as possible about the comps.

One thing to know when valuing a property is that the last 20% of the value is subjective. There is an art to deciding how much a property is worth’ that makes the process a little difficult to comprehend. The happiest residential surveyor could be 20% away from the grumpiest, this can stretch to 50% apart with commercial!

You could ask 10 different surveyors & agents and they would most likely give 10 different valuations. Of course, this doesn’t help, so at the outset you will be wise to remember a property is only worth what someone is prepared to pay for it. You’re entering an illiquid market which means each individual property is quite different from each other (save identical new builds in a row etc) & are not like cars where there are thousands of identical looking Ford Fiestas’ for sale with sales taking place many times in a day. That being said, its basically impossible to generate a ‘perfect right price’ for what an individual property is worth.

In the mix of deciding how much how a property is worth, the elephant in the room is a principle called ‘intrinsic value’. This is what causes a property to sell above or below the listed price.

If you don’t know what intrinsic value means, then read on. It simply means what the property means to the prospective buyer. WHY the property for sale offers strong positive or negative connotations to a certain buyer.

You can talk about ‘comps’ or comparable sales prices in the area all you want but intrinsic value is the deciding factor for the majority of residential sales. Have you ever seen a sale where you were quite surprised it sold for that price? A property you thought can’t have possibly sold for that amount? Well that was because it was the intrinsic value taking precedence.

Here is an example of intrinsic value, which will you give you an idea of what to look out for when estimating how much a property is worth.

A young businessman is currently living in a 2 bed flat he purchased 6 years ago. He was recently given an opportunity by his employer to relocate in a position that would nearly double his yearly wage. Although it was over 100 miles away, it was too good of an opportunity to miss and the income was a big factor. He initially started commuting nearly 200 miles a day and this was taking a toll & it was all too much to bare. He started looking for new place closer to his new work place & on the way back he saw a property for sale which was a 2 minute walk from his new office. He rang the agent & viewed the property which ticked all of his boxes: it had an office so he could work from home, a conservatory, & a big garden for his dog to play in. He currently had to hire a dog walker as there was no outdoor living space.

The estate agent informed him that there had been multiple offers already in place for the property but he was still with a chance if he could outbid another buyer. He ran the numbers and then successfully bided £20,000 over the asking price. Why? Because of the petrol he would have said on commuting every day, there was no need to employ a dog-walker & the stress & the overall psychological well-being of not making the nasty everyday commute was more than worth it to him.

You see there can be many other examples that have nothing to do with money but lean on the emotional and/or psychological values of the prospective buyer. The point that needs to be stressed is this – there are scenarios that we do not see or know about when you see residential properties sell way above asking price. What doesn’t appear to make sense to you, may make perfect sense to another buyer. And this is the crux: you need to imagine and get inside of the head of protective purchaser to make an informed decision on how much a property is estimated to be worth.

Keep in mind that when you’re looking at comparable sales prices in your area to determine the property’s worth you need to be aware there may be very strong intrinsic values going on in the background from other prospective buyers.

This is why sales or sold prices cannot tell you everything you need to know about ‘value’. They may give you a indicator of the likely sales prices that will occur, but neither of them stand to the strength of intrinsic values.

With that being said & before I go into detail & specifics about ‘how to value property’ the first thing you need to get to know is your local market. You should be able to get to a confident stage of around £5000-£10,000 of how much a property should sell for on an open market. As well as speaking to agents pounding the street to get to know the kerbside appeal will give you a greater knowledge of property values.

The best websites to find out how much a property in a given area (same street or very close proximity) has sold for in the last 3 months are:

Speaking to at least 3 different agents & surveyors on their options can also be worth your weight in gold as ‘sold prices’ of recently completed transactions on the portals may have become outdated. So the first step would be to find similar properties to the one you want to value (same no of bedrooms, street, type, proximity) have sold or are on the open market for. Work out what has sold and whether it was good value compared with those around it.

(*Remember if you ask an agent to value how much a property is worth, they will often overvalue the price to get the property on to their books to win new business. As they don’t actually perform ‘valuations’ but offer more of an informal opinion, there is no requirement in law for them to be accurate)

Usually you will find properties that are in different size, condition, decor, etc so you would need to make adjustments for the subject property in question. For instance, if the next door property sold recently but it was 25% bigger and had a newer kitchen, it would make sense to reasonably scale down the value of the property you are interested in accordingly. The same principle will apply for the state of the repair too. Remember to reduce your offer if major alterations need doing too. If your builder or a surveyor notes that you need to spend £20,000 re-roofing or because or some hidden defect, you’re in a strong position to reduce your offer to take account of this & the estimated sales price should reflect this. Obviously if this is already factored into the sales price you can either re-offer (slightly) or not reduce the offer if you’re worried the seller will get offended and put the property back on the market. But the key-aspect is not to get emotional & be objective on how much the property will realistically sell for.

A little known fact by novice buyers is taking the asking price by the seller or estate agent as gospel. Usually asking prices are 10-15% inflated as they know buyers will invariably negotiate, but then again the asking price could be ‘under value’, ‘over value’ or represent the ‘actual value’ (whatever that figure may mean). If you’re offering asking price, you are probably offering too much unless the agent or seller has already reduced the sales price. A good tool to use to determine how much a property price has been reduced by (& how much it is realistically worth) and how long as it been on the market, ‘sold’ & come back on the market is propertybee.

Another aspect is keeping an eye on the local trend of the property market in the given locality of the subject property. Are property prices rising or falling & how fast? Are there a glut of properties stuck on the property with limited buyer demand? Or are they being ‘sold’ days within coming on the market? You can use propertybee for this as well as finding out the property’s history. You will easily be able to tell whether the asking price has changed & if the sale has previously fallen through. If you are savvy and have good relationship with the agent you can cheekily ask if the seller is having trouble selling the property so you can factor this into to determine the property’s value.

You can also talk to rival estate agents who will often dish the dirt on that particular property if it was previously on their books, & why they had trouble shifting it. They can be honest of their assessment on how much it’s worth if you just take time to build relationships with them and get them on your side.

If the property you’re thinking of buying is leasehold then you will need to make provisions & adjust for the length of the lease. If the lease on the property falls below 80 years unexpired the amount the property is worth rapidly declines with some lenders not even lending. Absent freeholders or management issues all play into the favour of a protective purchaser as the property will be worth considerably less then its counterpart. Any nasties such as neighbours from hell, stone cladding, the old avocado bathroom suit, windfarms, nearby noisy, pubs, pebbledash, flood risk zone, electricity pylons, gas heaters etc all play a vital role of how much the property will be worth.

Once you have gone through the above it is likely they will be pointing in a given direction and you should have it nailed the property’s worth to 5%-10%. Although rudimentary (and all property valuation based on comparable is) these are the best methods I know. Using automated valuations models like Zoopla and Hometrack just aren’t as accurate as a human following this method in my opinion. I see wildly incorrect values from these sources frequently.

In most streets though you should be able to get a feel for the value of a specific property type as long as there are lots of similar ones in the street and using the principles above you should be able to get to a mean value.

Before I go through the 2 step process of accurately valuing a property, its important to quickly establish that the true worth of a property has nothing to do with:

  • How much the seller paid for it
  • How much money they have spent over the years ‘refurbing it’ (there is a ceiling price)
  • How much they want from the sale

The one truth that you might have heard is “Your property is worth what a buyer is willing to pay for it” (just so long as the buyer’s mortgage lender agrees that the price is fair).

That is the fair price of what a property is worth resonates to:

  • The price a similar residential property to the subject property has recently sold for and
  • The price a similar residential property to the subject property is currently being listed at (on rightmove)

No matter what anyone tells you, valuing a property is essentially applied guesswork. Until it has been sold and the money is in the bank, nobody can guarantee to the penny how much it will achieve, there are just too many variables. The best anyone can do is look at the information & evidence presented & take an educated guess as to what somebody else will pay for it.

Steps to value how much a property is worth

Step 1: Find evidence of sold prices recently

You can easily find sold prices on the Land Registry website or Rightmove, but keep in mind these are filtered through 3 months after the sale has taken place and can become stale or out of date.

Here you are looking for sold prices as close to the subject property (same street or as close as) being the same type & with the same number of bedrooms.

Step 2: What’s on the market now

If 3 sold prices recently sold between £110k-120k and now there are similar properties on the market between £90-£100k you will need to investigate why this is the case. Are there too many properties on the market? Are they not selling? Are they over or underpriced? Are the previously sold prices old data? You need to be a good detective & uncover the truth about your local property market. Study the comparable properties with a critical and unbiased eye & decide why the property is at a lower or higher price.

Of course they are many facets why a property similar to the subject property can command a higher or lower price tag which on the face of it looks identical:

  • It has ensuite bathrooms
  • Newly fitted granite & high level kitchen
  • Off road parking
  • Larger internal square footage
  • A bigger garden
  • Newly decorated
  • Period features
  • Well maintained
  • A healthy lease (leasehold)
  • Double sized bedrooms
  • A better property type (detached is better than a semi-detached etc)
  • A better location & overview
  • An extension & a conservatory and the list goes on.

As you can probably digest, the simple answer is that there is no simple answer to exactly determining how much a property is worth. Valuing a property is all about using the comparable evidence, looking at what is on the market, what the estate agents are saying, getting a gut feel, using your knowledge and experience. And it can be very subjective.

More than any other valuation method I favour using the Rightmove sold website to see what has sold in that street/area that is similar recently. As these are completed values and pictures are present it is the best resource for comparing sold prices of Similar residential properties.

You are essentially trying to rationally estimate what the market would pay, when the market may not be rational.

Mark Homer
Mark Homer

Co-founder at Progressive Property, 600 + properties bought & sold. Full time property investor/analyst/geek & World Record Holder Author of No.1 Amazon best-selling book Uncommon Sense, Low Cost High Life and Commercial Property Conversions.