In the world of real estate, making good investment decisions is essential to get the most out of our properties. But with terms like ‘valuation’ and ‘appraisal’ appearing frequently, some may be confused about their meanings and differences. Understanding these concepts is the compass that guides us toward the best results whether we are selling, renting, or buying a new property. Let’s know the meaning of these terms and how they affect our real estate decisions.

What is the difference between valuation and appraisal?

A real estate valuation aims to determine the true value of your property based on its unique characteristics and the current market situation. This is done by an accredited real estate valuer who has the experience to analyze real estate data and determine the fair value that your property deserves. To determine the true value, the valuer considers factors such as location, condition, size, and view, as well as market conditions and similar properties in the area.

The appraisal of the real estate is a later stage that focuses on determining the price agreed upon between the buyer and seller to complete the sale of the property. In other words, the price represents the financial value that both parties agree to complete the deal.

The valuation value plays a major role in determining the price, but it is not the only influencing factor. Other factors such as the buyer and seller’s desire, the condition of the property, and even market conditions may intervene to modify the final agreed value. The price is governed by supply and demand and a property may be sold above or below its value when the property market is in turmoil.

Value vs Price

Don’t get confused between these two terms, value is the true valuation of your property based on its characteristics and market conditions. Price is the final amount a buyer pays for your property, and may be influenced by negotiation and the need to buy and sell.

The price is the amount paid for the transfer of ownership between the buyer and seller and the actual ownership of the property. The price may not be equal to the value, the buyer may pay a higher price than the real value of the property due to the urgent need for a real estate property in a specific area. For example, a property may have a market value of SAR 500,000 and is offered for sale with a higher profit margin of SAR 520,000 and the buyer negotiates the price of the property to buy it for SAR 510,000.

Different types of real estate value:

The method of valuing your property depends on the purpose of the valuation, and accordingly, different types of value emerge:

Market Value:

This is the value at which the real estate is sold under normal economic conditions in the market.

Investment value:

This is the value of the real estate if the property is owned for investment purposes.

It is assessed based on assumptions about how the real estate will be used for investment and the investor’s goals.

Assurance Value:

This is the value of the real estate in an insurance policy.

It is determined by the replacement method by calculating the cost of rebuilding the real estate and subtracting depreciation and uninsured items.

Fair Value:

The current value of a real estate property is independent of any external influences or fluctuations in market prices.

Mortgage Value:

This is the valuer’s estimate of the value of the real estate’s mortgage.

It takes into consideration the risk of market price movements if the real estate is sold.

Book Value:

This is the value of the real estate estimated by the valuer to be recorded in the company’s records or statement of financial position.

Liquidation Value:

This is the value at which the property is sold in the event of liquidation or quick sale.

It is lower than the market value due to the nature of a quick sale.

Tax Value:

It is the estimated value of the property to pay the taxes due.

It is determined according to the tax laws and regulations of the region or country in question.

In the end, knowing the difference between value and price and the types of value is important for you for an effective valuation of your property, do not hesitate to contact a certified real estate valuer to provide you with the necessary guidance, and to embark on a smart investment journey in the world of real estate.