Three established methods for real estate valuation in Germany
In Germany, there are three established methods for real estate valuation: the comparative value method, the income value method, and the asset value method. Authorities and courts recognize these proven valuation methods. In most cases, appraisers use at least two different methods to ensure an authentic valuation. The comparative value method is based on comparing the real estate with similar properties. A sufficient number of comparable properties is a crucial prerequisite for the application of this method. Comparable properties must have a similar construction and a location of equal value. Experts use this information to calculate average values that indicate the property value per square meter. The determined value can be negatively influenced by individual environmental factors, for example, and positively influenced by modernization measures. The income approach can be used for real estate valuation as soon as the property being valued generates income. This applies primarily to rented properties. Examples include offices, residential properties, and shops with a lease. In the income approach, the income values from rental income are supplemented with the land values of the properties in order to value a property. Appraisers deduct operating costs from annual net cold rents to calculate the net income. To take into account the effects of high property interest rates, experts also include the deduction of land value interest in the property valuation. The remaining useful life and defects in the property also influence the income approach. In the asset value method, the property valuation is based on the question of what costs would be associated with the construction of a comparable building. For used properties, depreciation due to age and the remaining useful life are included in the calculation. In addition, the regional real estate market and local construction prices influence the valuation method. Appraisal committees often determine a real value factor for this purpose, thereby facilitating the property valuation. Property appraisers use the real value method to first determine the building value and the land value separately, in order to add the values together at the end. In addition to the size of the property, other property characteristics such as the year of construction, the living space, and outdoor facilities are relevant for determining the real value.