Real Estate Valuation

From a real estate point of view, the valuation of a property is a process usually required whenever the transaction of an apartment, house, shop or land is at stake, for the purposes of sale, lease or within the scope of a mortgage loan.

What is the purpose of a real estate appraisal?

Real estate appraisal is required for several purposes, being mandatory in some situations:

• In a mortgage credit process for the purchase or construction of a property;
• For tax reasons, such as asset valuation (VPT) which, among other purposes, serves as the basis for calculating taxes such as IMI, IMT, etc.;
• Within the framework of legal proceedings;
• Inheritance or sharing of real estate;
• Expropriation for reasons of public utility;
• Assessment required by an insurance entity;
• Various types of transactions;
• As part of an investment process;
• In the context of an asset valuation of an individual or company.

How is a property valued?

The valuation of a real estate property can be done by several methods, among which the following 3 stand out:

Comparative Method - Also known as the “Direct Method”, “Comparison”, “Synthetic” or “Empirical”, it is based on knowledge of the local real estate market and the transaction values of properties similar to those of the property to be appraised. This is one of the most used methods and one that inspires greater confidence, as it reflects the commercial value of the good, when subject to the law of demand and supply.

Yield Method - Also referred to as the “Analytical Method”, “Income Capitalization Method”, “Exploration Method” or “Indirect Method”, and is used when it is possible to estimate the yield likely to be obtained by a given property, taking based on current capitalization of expected net income. Together with the previous one, this is one of the most used methods in Portugal.

Cost Method - Also known as the "Investment Method", "Reproduction Cost Method", "Replacement Cost Method" or "Replacement Cost Method", consists of determining the value of the property through the sum of the value of the land market and all costs necessary for the construction of a property with the same physical and functional characteristics. It is used in the valuation of rarely traded real estate, such as public property, churches, castles, etc.

Who can carry out a real estate appraisal?

Property valuations must be carried out by professionals - real estate appraiser or expert - with a degree in: Real Estate Management, Engineering or Architecture, or in a relevant area linked to Real Estate Valuation; experience in Real Estate Appraisals; active registration with the CMVM. They must be registered with the professional association and have insurance.

What data should be included in a Real Estate Valuation

The report must contain reference to the following aspects:

1. Identification of the entity carrying out the assessment;
2. Clear identification of the object of the assessment, including photographs and description of its physical and functional characteristics, etc.;
3. Purpose of the assessment, with reference to the entity or person for whom the assessment is carried out;
4. Bases and assumptions for the assessment;
5. Date of last visit to the property and date of valuation;
6. Warnings (in relation to the discrepancy between the physical reality and the description in the matrix register, when there are doubts in the identification of the property or in relation to the structure and state of conservation, whenever what is evaluated is not in accordance with current legislation, or has a use not possible to determine, when there isdoubts regarding the sources of information, the owner of the property at the time of the valuation and the lease or assignment conditions);
7. Chosen method;
8. Justification calculation, justified error range;
9. Value of the property (number and in words), when the valuation concerns a property consisting of different cadastral properties or fractions for registration purposes, the total value of the property must be given and the partial value of each of the parts that constitute it (eg.Value for each fraction or parking garage);
10. Appraiser signature.