When the asset-based valuation method is suitable for your property

To avoid selling a property below its value or failing to find a buyer because the asking price is far too high, it's crucial to know its precise value. Various methods exist for determining a property's value. The asset-based valuation method focuses on the building's structural integrity. But for which types of properties is this method suitable?

The cost approach is suitable for owner-occupied single-family and two-family homes. Unlike the sales comparison and income approach, the land value is determined separately from the building value. Finally, both values ​​are added together. The land value is often determined using the sales comparison approach. To determine the value of the building on this property, the construction or reconstruction costs of the building – i.e., its cost value – are calculated.

Several factors are considered when calculating the property's value. For example, living space, construction quality, and features must be taken into account. Furthermore, the presence and condition of outdoor facilities such as garages, patios, and gardens are also important. For any existing structure, the goal is to determine the construction costs that would be incurred if the building were rebuilt in the same form. Appraisers use specific tables to determine these assumed construction costs. For instance, a detached single-family home is generally valued higher per square meter than a terraced house.

The degree of wear and tear and the remaining useful life of the property are then derived from the determined values. For residential properties, experts usually assume a total useful life of 80 years. The determined value of the property decreases by 1.25 percent per year. For example, if the construction costs of a building were calculated at €100,000 and the building is already 10 years old, then it is only worth €87,500, i.e., €12,500 less. This typical depreciation can be counteracted with renovation and modernization. With, for example, a modern heating system as well as an insulated facade and windows, even a house that is already 100 years old can almost reach the standard of a new building.

Finally, the market adjustment factor is added to the assessed value. This factor relates the determined value to comparable properties. It is largely determined by current demand. For example, in regions with lower demand, the assessed value often needs to be adjusted downwards using the market adjustment factor. Conversely, in regions with high demand, the market adjustment factor can result in a higher value. These market adjustment factors are calculated and maintained by the valuation committees throughout Germany for various property types.

Do you want to know which valuation method is right for your property? Contact us! We'd be happy to advise you.

You need more information:

https://de.wikipedia.org/wiki/Sachwertverfahren

https://de.wikipedia.org/wiki/Grundst%C3%BCcksbewertung

https://www.sprengnetter.de/wissensportal/immobilienbewertung-alle-wichtigen-informationen/

Legal notice: This article does not constitute tax or legal advice for any specific case. Please consult a lawyer and/or tax advisor to clarify the facts of your individual situation.

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