Real Estate Assessment: How to Determine the Value of a Residential Property

a real estate assessment in italy home value how to guide

Introduction

Within the context of real estate evaluations, there are three fundamental value configurations:

– Market Value: represents the value of the entire real estate market.

– Equitable Value: concerns the fair value negotiated between the parties involved in a transaction.

– Investment Value: indicates the specific value for a given subject about the investment.

The choice of the correct value configuration depends solely on the objective of the real estate valuation. Other configurations such as conventional value and realization value are applicable only in a limited manner and under particular circumstances.

To obtain an accurate valuation of one’s property, it is possible to use free online services offered by platforms such as Immobiliare.it, Casa.it, and Idealista.it. These tools allow users to input information and characteristics of the property to receive an estimate of its value.

Additionally, consulting real estate listings provided by official entities such as the Italian Revenue Agency can be useful to have an approximate indication of the market value of properties in different areas and building types. However, this information should be tailored to the specific case considering additional parameters.

Market Value

Real estate valuation is based on the principle that the market will determine the price of a property similarly to how it has set prices for similar properties belonging to the same market segment through the principle of comparison. This method involves directly comparing the property to be valued with similar properties sold at a known price, requiring adjustments based on differences in the features under examination.

To obtain an accurate estimate of the value of a property, it is essential to consider the commercial area of the real estate unit. The commercial area is determined by including all internal dividing walls and half of the walls separating the property from neighboring ones. Additionally, ancillary spaces such as balconies, cellars, gardens, and other areas are considered, applying specific coefficients to each of them to obtain the overall commercial area of the property.

Methodology of Expected Results

In this case, the valuation of a real estate asset is based on estimating the value through the future revenues generated by the property, often represented by rental income. This process can occur through the capitalization of a standardized rental income, known as “market rent,” or through the discounting of converging rental flows to “market rent.”

Income Methodology

This methodology is developed through 3 procedures:

– Direct Capitalization: This method involves directly and instantly converting the property’s annual market rent into its market value by dividing the annual income by a capitalization rate. The capitalization rate represents the ratio between market rents and the prices of comparable properties to the property being valued.

– Financial Capitalization (DCF – Discounted Cash-Flow of an Income-Generating Property): This approach involves applying financial calculations to the series of net annual incomes and the property value over time.

– Discounted Cash Flow Analysis or “Transformation Method” (DCF – Discounted Cash Flow of a Real Estate Development Operation): This method involves evaluating the value of the property through the discounting of cash flows converging to “market rent”.

Urbanization Works

For an appropriate valuation, it is necessary to assess if there are:

– Primary urbanization works such as roads, parking lots, energy networks, water networks, sewerage networks, green spaces, public lighting;

– Secondary urbanization works such as proximity to pharmacies, shopping centers, public offices, churches, and schools. Or services such as hospitals, public safety, retail stores, fuel suppliers, bars, pizzerias, and restaurants; Additionally, the distance from ports and airports and the city center also influence.

Concerning urban planning destinations, it is necessary to consider the area in which the land with buildings is located and in which an active manufacturing program is inserted.

Additionally, it is necessary to verify if the area is subject to regional constraints, such as prescriptions and limitations of the Regional Landscape Plan (e.g., internal to the coastal strip).

Constraint Regime

About this regime, it is also necessary to consider if the properties are burdened by:

– Constraints deriving from clauses contained in the Urbanization Agreement concluded with the Municipality in which the property is located;

– Constraints deriving from the building regulations of a possible Consortium regulated by the relevant law and by the Consortium Statute;

– Any condominium burdens that will remain the responsibility of the buyer.

Value Determination

Calculation of Areas: it is necessary to calculate and evaluate the commercial area of the current state of the property, usually done on a 1:100 scale plan, based on the application of the criteria provided in the UNI 10750 Standard.

Weighting Coefficients (%)

Below are the weighting coefficients, for the most common environments, used for the calculation of the gross commercial area:

– Interior walls and load-bearing walls at 100%

– Bordering load-bearing walls at 50%

– Porches at 35%

– Entrance halls at 60%

– Garden at 10%

– Courtyard at 10%

Estimation Criteria with the Synthetic-Comparative Method

This method is based on the comparison between the property being valued and similar ones in the same area, adjusting and evaluating it based on intrinsic and commercial characteristics.

The information is obtained through market research conducted in the area of interest, also promoted by various real estate agencies. This also includes research on their respective websites or through consultation with the real estate market observatory of the territorial agency.

Market values ​​must be verified and determined by the average of the market values ​​and the data set by the Real Estate Observatory of the Revenue Office.

In this way, the estimation of the data must be measured in light of the previous considerations such as location, maintenance status, age of the property, plant equipment, road connections, and efficiency of public services in the area.

The unit value obtained must be compared with the values ​​found in the main real estate agencies referring to properties present in the area.

Economic Value of the Property

The economic value of the property varies depending on the valuation method used and the economic aspect considered.

The Bank of Italy defines (Circular no. 263/2006, section IV, point 1) the market value as “the estimated amount at which the property would be sold on the valuation date in a transaction carried out between a seller and a buyer consenting to normal market conditions after adequate commercial promotion, within which the parties have acted with knowledge, prudence, and without any constraint“.

The definition is in line with that reported in the International Valuation Standards (IVS 2007 – S.1) according to which: “market value is the estimated amount for which a particular property can be bought and sold on the valuation date between a buyer and a seller, both being unconditioned, independent subjects with opposing interests, after adequate marketing activity during which the parties have acted with equal capacity, prudence, and without any constraint.”

Therefore, real estate valuation must seek to determine the market value of the property, i.e., the value attributed to it by common buyers and sellers in the free market.

The method above is based on the comparison of the property being valued with others of similar intrinsic and extrinsic characteristics (the so-called “comparables”), considering, as already mentioned, the following aspects:

– Characteristics of the area in which the property is located;

– Building type, construction materials used, degree of finish, plant equipment;

– Condition of use and maintenance.