Hedonic estimation — precisely determine real estate value
What is a hedonic estimate? - The definition
Die hedonic estimation is a common method for property valuation, which is based on a comparison with properties that have already been sold. In Switzerland, this method is used primarily by banks, pension funds and real estate agents to improve the current market value to identify a plot of land or real estate. The hedonic evaluation method compares relevant criteria such as Location, equipment and size with transactions of similar objects that have already been completed. This type of assessment is part of Comparative value method, in which the property is appraised on the basis of real sales prices. The hedonic appraisal is often carried out from a distance without the property being committed.
Requirements for hedonic estimation
For hedonic estimation to provide valid results, a comprehensive database is required. The valuation usually includes up to 70 property parameters. This includes:
- Year of construction and number of storeys
- Living and usable space as well as number of rooms
- plot size
- equipment class
- Public transport connection
- Work and leisure activities in the area
important: This method requires a sufficiently large number of comparative objects that are in a similar situation and have been sold in recent months. Only then can the market value of a property be realistically calculated. In addition, the specific condition of the property must correspond to the average of a property this year of construction.
Who performs the hedonic estimation?
Banks and insurance companies use hedonic estimation to value real estate, as it provides a quick overview of the current market value. If owners or buyers want to assess the value of a property themselves, there are various paid and free tools available online. For an official valuation, however, it is worthwhile to hire a real estate appraiser who, through his expertise and detailed knowledge of the real estate market combined with an inspection of the property, ensures a precise assessment. These reports are particularly valuable for inheritances, divorce proceedings and real estate financing.
Alternative assessment methods
Hedonic estimation is one of several established assessment methods. Depending on the type of property or the purpose of the valuation, other procedures may be useful:
- Residual value method: Calculated as the residual value that results after the sale of all realizable land that can be built and sold on the property and the deduction of costs and risk surcharge for development.
- Substance-value method: Consists of the land price and construction costs, minus depreciation due to age, of the property and is particularly suitable for properties with few comparative values.
Strengths and weaknesses of hedonic estimation
thicknesses
- Efficient and fast: Since the method is based on data from real sales, it usually results in a market-oriented value for standard objects.
- objectivity: Owners' emotional price expectations, which often become a sales barrier, are ignored.
- Broad acceptance: Banks and insurance companies rely on this method because it represents the market value based on comprehensible data.
weaknesses
- Dependence on comparative data: If too few similar properties have been sold in a specific region, the valuation may be inaccurate.
- Unsuitable for special objects: In the case of exclusive real estate or land with special properties, such as agricultural land or special location factors, the hedonic method provides less reliable results.
- Individual weighting of parameters: Depending on the point of view and weighting of the factors by the reviewer or the tool, there may be different assessments, which can lead to financing problems.
tip: In order to avoid discrepancies in real estate valuation, it is advisable to consult an expert.
.png)