When you’re about to sell a property, whether it’s a house or an office, it’s a good idea to request an appraisal of your property to avoid unpleasant surprises at the time of sale or discovering that you’ve sold your property at a loss due to a superficial appraisal.
What are the steps to calculate real estate value?
The steps to obtain a correct valuation of your property can be summarized in five steps:
Determine the market value;
Know and calculate the property’s surface area;
Define the market value per square meter;
Identify the merit coefficients;
Compute a final calculation of the property’s value.
The market value of a property
The market value represents the price at which the property will be sold on the open market. This value is determined by a balance between supply and demand.
A distinction must be made between the market value and the cadastral value. This type of value is useful when purchasing a first home or when dealing with inherited properties. The cadastral value of a property refers to its tax value and is used to calculate certain taxes related to sales transactions, particularly the transfer of ownership from one beneficiary to another. For this reason, it cannot be used as the market value for a potential property valuation.
To calculate the market value of a property, a precise and specific mathematical formula is used that takes certain factors into account.
Market value = Commercial area x Price per square meter x Merit coefficients
Calculating the property’s surface area
The second figure to calculate is the property’s commercial surface area, which includes all covered areas, weighted areas (terraces and balconies), and the percentages of the appurtenant surfaces. These different types of surface area are included in the calculation at different percentages: for example, perimeter walls are calculated at 100% up to a maximum thickness of 50 cm; attics are calculated at a maximum of 75% if they have a minimum height of 240 cm, otherwise the percentage drops to 35%. The same principle applies to mezzanines, for which the maximum percentage is 80%.
The market value per square meter of a property
The third element to consider is the property’s value per square meter, which, in turn, is determined by various factors: geographic location, building condition, and state of repair. All these factors are monitored by the Revenue Agency through the OMI (Real Estate Market Observatory), which updates property prices every six months, providing a minimum and maximum property value depending on the location.
Merit Coefficient
Another analysis tool, and the final variable to consider, are merit coefficients, which are those values that can lead to an increase or decrease in the property’s value.
The main coefficients are:
Floor-based coefficient: depending on the floor on which the property is located, the value increases or decreases. For example, a ground-floor apartment may experience a reduction of -20% to -10% in value depending on whether it has a private garden or not, while an apartment on the top floor may experience an increase in value of +10% to +30% if there is an elevator.
Coefficient related to the rental status of the property: for vacant properties, it is 100%, for rented properties, there is a 20% reduction, and for seasonal rental properties, the coefficient is -5%.
The third coefficient is related to the age of the property: the possibility of more or less major renovations significantly affects its value. For a property in need of renovation, this is a -10% reduction in value; for a renovated, finely renovated, or newly built property, the value may increase by +5% to +10%.
An additional factor is the presence of a heating system.
The final factor that determines the final value of a property is its exposure and view. A panoramic view will have a greater impact than an interior view.
The final calculation of the property’s value, which refers to the mathematical formula described above, takes into account all the factors described here: multiplying and considering the various aspects that characterize the property.
Cadastral value, Cadastral income, real estate value
Cadastral value, cadastral income, and real estate value are increasingly being confused and misused. It is therefore important to classify and clarify the individual terms.
Cadastral value is used to calculate the taxes a citizen must pay and is obtained by multiplying the cadastral income by certain coefficients that vary depending on the cadastral category to which the property belongs.
Cadastral income: This is the value assigned to a property that generates income, a value assigned by the Revenue Agency.
Market value of the property: This is the essential factor for buying and selling a home and represents the estimated price for which the property should be sold in a given period.
To obtain a timely and accurate property valuation, it is best to seek the assistance of a professional and rely on a real estate agency who can advise on the price to set for the property.