The basic principle for calculating the value of a home begins with a comparative market analysis. This looks for homes that have sold before and are similar in terms of the type and size of the home.
We call these reference homes. At Walter, we have a computer model that scans thousands of data points for the best reference homes. The computer model looks at several criteria:
Homes up to 3 years ago, with a preference for recent ones
We are primarily looking for the same house type as the owner-occupied house (for example, a terraced house or just a semi-detached house) but also of a similar construction period (with a 10-year variance) and comparative size of living area and lot size (ideally up to 10% variance).
Whenever possible, houses from the same street or neighborhood. If there are available due to the other criteria, then we have to look further away.
The challenge is that no two houses are the same, so we must make corrections to compensate for the differences between the owner-occupied house and the reference houses. The purpose of the corrections is to discover how much the home could have sold for if it was located next to the owner-occupied home, had the same home characteristics, and sold yesterday. Then, we apply the corrections to the reference property's original purchase price, resulting in a comparison value. We do this for at least three reference homes, so that we have less chance of significant outliers. Finally, the average of all comparison values estimates the home value of the owner-occupied house.
The comparison values consist of several corrections:
Updated purchase price
The home value of a home sold a while back is probably different from the sale price at the time. In general, prices are changing, and the change varies from place to place. Therefore, we update the original sales price using a house price index. We use the house price index from CBS.
Not only do price developments per city sometimes differ, but also those per neighborhood in the same city. In addition, some neighborhoods are, by definition, more expensive than others. This is usually due to location and socioeconomic factors. In real estate, the general rule is 'location, location, location.' So location determines the value of a property. Sometimes there are only a few good reference homes in the same neighborhood. Then we see if we can find a suitable reference property in a different area. If that neighborhood is generally cheaper or more expensive than the neighborhood where the owner-occupied home is located, we correct the reference home accordingly.
Living space correction
Generally, the larger the house, the more expensive it is but, the lower the square meter price (€/m2). Therefore, a 120m2 home is usually more costly than a 100m2 house but has a lower €/m2 than the 100m2 house. So on paper, a square meter is cheaper for larger homes. If a reference house differs significantly in living space compared to the owner-occupied house, we correct the reference house for this.
With these corrections, the computer model can compare any reference house. However, it is up to your Walter Expert to choose the best reference properties. This is because the Walter Expert pays attention to more things.
- Whether the reference homes are also comparable in terms of interior luxury to the purchased home.
- The leasehold situation if applicable. A house where the ground lease expires soon will have a lower value than a house where the ground lease has already been bought off for the coming decades. This is because much money is involved in buying out ground leases from the municipality.
- To a lesser extent, the amount of money in the VVE's coffers can also affect the home value, but this is usually a small amount.
- Unique property features such as a sauna or swimming pool.
- Special locations of the property, for example, on a busy road or with a nice view.
Computer models are perfect for selecting home references, but you can see that Walter Expert is still an essential part of the process.
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