Evaluating the value of a property is a key step when it comes to buying or selling a house or land. The procedure is obviously the same in the case of an inheritance: the heirs must know the value in order to divide up their share in the property. To estimate this value, we have to take into account many factors, and consider the location and current market prices. This makes it necessary to call on an expert broker to correctly estimate the value of a property.
Furthermore, there are several types of property values. Real estate can be valued in different ways, each of which has their own characteristics. It is therefore useful to understand the characteristics of these different ways of valuing a property in order to be better involved in the sale or acquisition process.
The venal value is often synonymous with the market value. This is the price at which a property should be bought or sold. However, it cannot be determined or calculated mathematically. It is therefore an estimate made most often by an expert broker, who combines other values of the property and all the external factors. The venal value is therefore equated with the market price. However, the price is the final amount upon conclusion of the deed of sale between the seller and the buyer, whereas the value is that prior to the sale.
Real or intrinsic value
The real value, also known as the intrinsic value, corresponds to the cost of recreating the very same property, minus a certain percentage for depreciation over time, and obsolescence which will be appraised according to the age and the state of maintenance. This gives the replacement value of the property. To this must be added the value of the land, to obtain the real value. However, this value does not take into account the supply and demand rule.
The collateral value is the evaluation of the property value by a mortgage creditor (e.g. a bank). In other words, it is the value that the creditor agrees to finance in the form of a mortgage. This value will often be lower than the other values, because the evaluation takes a conservative approach. This estimate takes into account the sustainability over time of the price of the property and ignores cyclical fluctuations, in order to give a constant value over time of the collateral, regardless of the oscillation of market prices.
The insurance value is equivalent to the sum generally covered by the Cantonal Insurance Bodies (ECAs) or property insurance companies for what is not covered by the Canton. In fact, this varies from one Canton to another. This estimate is calculated on the basis of the replacement value of the property (not including the land) in the event of a total or partial loss. The insurance value can therefore often be treated as equivalent to the replacement value.
The tax value is calculated by the tax authority. It represents the value on which taxation of the property is based, according to the place of tax liability. It serves as a reference value for certain tax charges. It often corresponds to between 70% and 90% of the venal value.
The yield value corresponds to the annual rent, capitalised to a yield, accepted today by financing institutions in a range of 4% to 5%, depending on the location and the quality of the property. In fact, when an apartment or a house are rented with an unlimited lease in place, the value taken into account is not the venal value, but the yield value. This will have a direct impact on the selling price of the property.