How is real estate valued?
Comparative value method (e.g. for apartments):
The property is valued here on the basis of comparable sales - i.e. properties that are as similar as possible in the vicinity of the property to be valued. In practice, this is calculated with € / m² prices - i.e. it is determined at which €/m² prices the comparable properties were sold and this value is multiplied by the m² of the property. Of course, this method only works if there is a sufficient number of comparable transaction prices. Please note that offer prices are unsuitable for the procedure, as they often deviate considerably from the realised prices. The comparative value procedure is often used for apartments and houses of the same type (terraced houses or estate houses).
Real value method (e.g. for single-family houses):
In this procedure, the value of the land is determined separately from the value of the building - and then both are added together. The land value is determined using the standard land value. The value of the building is determined using tables with so-called normal production costs (NHK). These NHK refer to one m² of gross floor area (GFA) and are multiplied by the GFA of the property. With various adjustments (e.g. for special equipment such as pools, fixtures and special gardens), the value of the materials used and other costs that would normally be expected for a building of this type is determined in this way - in simplified form. Together with the value of the land, this real value of the building results in the calculated asset value of the valuation object. However, since supply is often significantly lower than demand - at least in Munich - this real value often has to be adjusted considerably to the market price. Only the experience of an expert can help here.
Income capitalization approach (e.g. for apartment buildings):
Here, the income to be expected at normal market rates forms the basis for the valuation. The German procedure is too complex for a brief explanation, but in principle this approach first calculates the market rent to be obtained for the property - without taking actual rents into account. This market rent is reduced by the costs normally incurred by the owner (e.g. loss of rent, maintenance etc.) to obtain the gross profit. Now, market participants are assumed to have a certain expected return: high return for high-risk investments and low return for low-risk investments. Since Munich is considered a very safe location, one currently expects 2.50% - 3.00% in central locations. Due to the long life of real estate, the gross yield is now multiplied by this yield (to simplify matters, to infinity). This results in the formula: Gross Income / Yield = Income Value. After taking into account special items (e.g. a current higher or lower rent than usual on the market), the market value can be determined by an expert.
Since the respective results of all three valuation methods must then be assessed against the background of the market and adjusted if necessary, it is advisable to leave the valuation to an expert.
