What are the home appraisal methodologies ?
I would say that there are as appraisal methodology as there is home seller in Luxembourg…. This is a joke, however, like in Finance, there are several home appraisal methodologies.
Let’s have a look at them :
Firstly, the STATEC and the « Observatoire de l’Habitat » (Housing Minister), are issuing quarterly reports and other periodic publications about housing pricing, by sub regions, communes. In order to make the average square meter prices comparable, the government asked to clean the data and exclude the impact of parking lot, garage, cellar, plot size in order to get a pure square meter average price.
The advantage of these publication, is that the data are precise enough for each commune, and you will find also the number of transaction by commune for each period, for existing building, or under construction. The inconvenient is the delay of publication (at least 6 months) because data are issued from the statistics of notary’s chamber.
Secondly, when you analyze the classifieds published on the several housing internet site, you can immediately set an average price per square meter asked buy the sellers. Then you have inside this price the impact of the « extras » linked to the property. I mean by extra, the balcony size, a parking plot or garage, the garden, the view and so on. People will valuate these plus or minus at a different when they will compare two or more properties.
Thirdly, when you talk to a real estate agent about valuating built property, some of them will speak about price per square meter which is affordable compared to market in certain case. And in another situation, when you argue that the price per square meter is expensive for the quarter, they might reply by telling you that valuation is not about price per square meter, but you have to take into account the potential value that a real estate developer can generate.
Let’s take an example to clear this point :
A house (semi detached or not) needing renovation, the real estate agent, will say that price has been calculated based on the size of the plot, the number of stages which are authorized in the street, a parking facilities. A 2 storey house with cellar and garage to fully renovated built on a plot of 3 ares could be valuated 3x EUR 100,000/are + 1 garage at EUR 35,000 + 1 cellar at EUR 5,000. If it is possible to build an additional level and increase the size on each floor by 20m2, then considering a price per square meter newly build at EUR 5,000/m2, we are coming to 3x(50+20)x5000 = 1,050,000
To sum up:
300,000 (land plot) + 1,050,000 (construction) + 35,000 (garage) = 1,385,000.
The bottom line of this method, is you thought you were buying a 100m2 house to be renovated, and the real estate agent is telling you will get a new 210m2 house (the old one will be destroyed for EUR 40,000 max). So, all is selling argumentation! Now it is your turn to ask you the good questions, for example, considering this project as a new house, what is then the construction cost per square meter today? Are these EUR 5,000/m2 realistic? Does a cellar really cost EUR 5,000? same question for the garage…
NB : this example is pure imagination. Any similarity with an actual case is unforeseen!
Lastly, another methodology, which not fully scientific, is about the use of an online valuation engine from Nexvia you can find it here.
This online valuation engine is picking up the data from the STATEC and chamber of notaries and then adjusted by real estate expert of the Luxembourg market.
The online simulator gives you a price range of the property after you validated a questionnaire supporting the precise definition of all the characteristics.
I think this evaluation method (which is currently free) could be used as a supportive basis for negotiation purpose.
To conclude this article, here below are the information to be used for your own property assessment:
- Official statistics (Statec) which are providing an effective average sales price with at least 6 months delay. If you adjust by adding 5% to the price, then you should be close to the current market level.
- Average sales prices asked statistics to be found on the internet sites.
Pragmatic valuation methodology applied by real estate agencies and real estate developer, which shows the potential value of the property.
- An hybrid methodology, the Nexvia valuation engine, based on the official statistics data and computed with parameters developed with the expertise of Luxembourg real estate professionals.
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