Automated valuations utilise a property's sale history to calculate how much it will have changed, by using the average price of properties in the surrounding area.
However, sometimes properties are sold in distressed situations, for instance where a person can no longer afford their mortgage, their home may need to be sold quickly and therefore at a discount to its real market value.
This in turn, can cause its future valuation to be lower than it should be (as really the previous buyer got a bargain and caused the historic sale price to be distorted).
Another common distortion to the average property price (and automated valuations) happens when a lot of new housing development takes place. This can dramatically increase the average price of property temporarily but after all the newly built properties have sold, it tends to drop back down just as dramatically, which leads to a brief spike in local prices.
|Similar priced properties sold recently in the same postcode?|
|Valuation similar to multiple properties in the same postcode?|
|Cost per square foot within expected range?|
|Property transaction history - sold multiple times?|
|Latest sales went for expected market value?|
By looking at the cost per square foot (CPSF) we can benchmark a property against many properties in the local area, even if they aren't identical - as the CPSF ignores the difference in a buildings size.
The cost per square foot is an excellent way to double check that a property hasn't been incorrectly valued as it allows you to compare it against more properties in the local area, even though they may not be identical.
The cost per square foot is calculated by taking the price (or valuation) and dividing it by the size of the property. Strictly speaking, it only includes internal habitable floor space - for example, floorspace associated with a garage should be excluded from the calculation.
This shows the cost per square foot that each property would sell for today and how it compares to the average for this postcode.
|Last sold||Address||Cost per square foot**|
A property that is in better condition would typically have a higher cost per square foot.
** Cost per square foot is based on today's market value. Percentage values show the CPSF compared against the average CPSF in this property's postcode.
Using the cost per square foot as a valuation method is an excellent way to compare valuations of nearby properties even if they aren't the same size.
However, it isn't perfect.
It only takes the internal habitable space into account, so it ignores outbuildings and differences in garden dimensions (a.k.a. plot size).
For flats (and other leasehold properties), using the cost per square foot won't take account of the length of the lease remaining, which can also make a substantial difference to a property's value. If an owner has renewed the lease, the property would be worth substantially more than an identical property that had a much shorter lease left.
Properties bought through shared ownership schemes can skew the average cost per square foot in a postcode (as HM Land Registry don't release the additional data on what proportion of the property was purchased).
The cost per square foot not only relies on the previous transaction data (price paid data) but also the internal floor area being accurate (and up-to-date) - if the generated cost per square foot falls well outside of an expected range, it may indicate that some of the underlying data isn't correct.
We offer a few different methods for valuing property - pricing property often still needs some human input to ensure that you're arriving at a sensible price. Make sure you compare local properties and use your judgement to produce a more accurate valuation.
To get the best valuation, sometimes it's best to:
* Excluding properties that we've been unable to calculate a valuation for.