How Are Houses Really Valued?

[housinghunting]

Hi,

We are quite new to house hunting and currently looking for our first property. We are specifically focused on one location and found a house right in front of an outstanding primary school. It’s a terraced house with no parking, but the asking price seems reasonable due to the location.

We’ve also seen mews houses, semi-detached, and detached homes. I’m curious about how houses are valued—do they base it on the area in square feet or the type of house?

For example, I came across some houses with around 700 sq ft, while the terraced house we’re considering is about 983 sq ft. I understand that factors like location, year built, and condition play a significant role, but when I spoke to some people, they mentioned that terraced houses are not considered as desirable. However, from what I’ve seen, terraced houses often offer more space compared to other types within the same price range.

I’m asking because I’m thinking about the future resale value.

I think a lot of it is comparison and local knowledge. They seem to count bedrooms and add a bit on for parking, location , condition, garden , detached etc.

I do think this is why new builds are so expensive for the size. I considered moving for an extra bedroom but actually it was over 20 square metres smaller than my current house (ye olde farmhouse) so I divided a room instead.

From speaking to estate agents when selling our house, it seems the main factor is square footage. Condition of the house, whether or not it has a new kitchen or bathroom etc seems to have little impact on value.

I'm surprised at this. We live in an older house and it was a lot cheaper per square foot than a new build would be. A lot seems to rest on the number of bedrooms rather than the actual size of a place. People seem to like en suites and extra bathrooms a lot too, going by prices (more than they want storage space).

They value on the basis of what similar properties sold for in the area recently. They'll add in/take away a bit for things like state of the kitchen, and then add or take off bits based on whether or not the comparison houses in the area sold recently or not.

Generally it is the land area that the house is on that dominates the value. Since terraced houses tend to be on small plots they will be valued less than detached of similar internal sq foot.

Generally if you live in a terraced house you are more likely to suffer problems with your neighbours (for example noise and rats, see posts on here about how the rats are getting in in another house and moving across) and trying to get permission to do stuff can be harder. Parking can often be a big issue in terraced houses.

The plus side is you get more space for your money and sometimes they can be warmer as you only have 2 external walls.

It really is location location location. I've lived in London all my adult life and no-one gets het up about living in a terrace because 80%+ of housing stock is terraces. Nash terraces aren't going to be losing much value over their shared party walls.

IME all the pricing is done on comps - not by the components of a house. They look at similar properties within the area and then tweak depending on how new the kitchen is, closeness to schools/tube etc.

It is a combination of all the things already mentioned, as well as such things as proximity to a railway station or desirable schools, whether the property may be of interest to a developer (eg: a detached house with a large garden might be a target for knocking down and several houses built on the land), and the scarcity of that particular type of property in the area.

I agree with FKAT - I grew up in a terraced house in London and almost everyone I knew lived in a terraced house. Almost everyone I know now lives in a terraced house. I've never thought anything of it. We've now moved to Bristol and most of the houses are terraced houses. Not once have I ever had neighbour problems or seen a rat, though there are lots of foxes in Highgate (where I grew up) so maybe that is the difference.

Perhaps it is a city thing but based on what I understand, things like proximity to green space, space for storing bikes, good schools, convenient and useful amenities like shops, pools, etc... are all more important. The number of bedrooms and bathrooms definitely has an impact - with lots of people WFH even an extra box room can command quite a bit more money. I'd say that transport options also make a big difference.

A side return, strangely, doesn't seem to have the same impact though its an expensive piece of work. We're buying a house right now and have found that buying a house with a downstairs extension is more cost efficient than saving £40k on the original price and then doing the work ourselves at a way higher cost.

Square footage doesn't seem to come into it from what I have seen. You can get houses that are the same size here that have vastly different prices. Configuration and move in readiness seems to be key.

It all depends, occasionally I see properties get downvalued. Mostly nowadays it goes on what "comparables" a surveyor can find.

If a couple houses sold for £200,000 near your house and they are similar to yours, chances are that is what a valuer is going to put, particularly if you need a mortgage.

I tend to sense check using sold prices on Rightmove, Zoopla etc.

I've worked as an EA in both London & home counties & have valued (& sold) hundred of properties over the years. Before valuing a property the agent will likely gather together evidence or 'comparables'. This is looking at similar properties in the area that are on the market or have sold (or been on & not sold) and comparing to the one you are valuing to come up with a likely price which will be fully decided upon inspection. Nowadays anyone can access this as so much information is available online but I would caution against just relying on Zoopla which is notoriously unreliable and you do rely on an agent's local knowledge & experience to a degree,

To give a bit more detail of the valuation process, if I'm invited to value a property, I start by assessing the property. I'll ask a few pertinent questions as this often tells quite a bit about motivation for sale (which affects value), how long they've lived there any improvements etc. I'll then research - if it sold in hte last 5 or so year you can usually find the property spec & sale price, or if not I might do a drive-by or use google maps to see what size/ type of property it is, position, garden/parking etc.

I'd then research (online) comparable properties and usually print these out to take on my valuation appointment as they can be useful to present valuation evidence particularly if a homeowner is adamant their property is worth significantly more than your valuation! Some properties like flats or terrace houses are generally pretty easy to value as you are likely to have other similar properties to compare then you just add for bigger gardens, extra bedrooms, parking, extensions, amazing decor/wow factor etc and deduct for poor condition, outlook, high outgoings or known neighbourhood/property issues. Unusul or unique properties it's often thinking about your buyers and what they are looking for & what they would pay rather than finding comparables. For more rural properties, location & land is often the value over the bricks & mortar whereas in towns and cities, £/square footage is often the starting point.

It's really not rocket science and even the best, most experienced & well prepared estate agents doesn't know the value as this is dictated by the market. They do however need to place a value on it and this is where they have to juggle wanting your business (often with high value low fee) but also needing to actually sell the property to get their fee! Many instructions include some negotiating on market price which I always find a little bonkers as the homeowner presumably has even less of a clue than the agent!

Wow, thank you all for your responses! I’ve read every piece of advice, and I really appreciate the input.
I wanted to share the two houses we’ve viewed so far:
Option 1: This house is in the ideal location for us, with an outstanding school right in front and all essential amenities nearby. However, it lacks parking and a proper garden with real grass. When I checked recent sales in the area, there haven’t been many, so I’m unsure how they came up with the asking price. My biggest concern is estimating its future resale value given these limitations.
https://www.rightmove.co.uk/properties/155217917#/?channel=RES_BUY

Option 2: I liked this house because it has everything we need, including parking and a garden. However, it’s in a less desirable area with schools that aren’t highly regarded.
https://www.rightmove.co.uk/properties/154370489#/?channel=RES_BUY

We’re torn between the two and wondering how much weight we should give to location versus house features. What would you prioritize in this situation?

Option 1 is lovely, and good schools are so important (imo). Especially if you can walk there. I wouldn't care at all about real grass, it's a pain in the ass. Parking can be annoying though but I'd still pick 1.

I would ALWAYS prioritise location.

You can change everything else about a house, location location location.

You can always take up fake grass and change the garden; you can’t take up the house and put it somewhere better.

one is a freehold and the other a leasehold .

Freehold is the one I'd choose

You are very clued up on your location, so this wont benefit you so much but I have found this new RM extension that can help people review home choices,

https://area360.uk/

Thank you, everyone! 💛 It seems like Option 1 is indeed the right choice for us. However, when I looked at properties sold nearby, I couldn’t find any similar sales in the last 2-3 years to compare prices.

This makes me wonder—how can we be sure that this house will appreciate over time? What if we end up overpaying because there’s no recent sales data to justify the asking price?

we tried to negotiate the offer but the owner are so adamant about this particular number.

Would love to hear your thoughts on how to evaluate this better!

No one can be sure their house will appreciate over time and that shouldn’t be the purpose of housing. You buy a house to live in and it’s generally a more secure option than renting – live there long enough and even if it doesn’t go up wildly in price you’ll still be building equity rather than giving money away in rent.

You can’t really overpay either – you offer what the house is worth to you. We “overpaid” on our house because it went to best and final towards the end of the pandemic race for space, all housing in the area has dropped in price a bit anyway and ours is a fixer-upper with work going up in price, blah blah etc etc. But it’s our house in the location we wanted. It would have been nice to buy it for £20k less and save the stamp duty too, but it would be nice to know Friday’s Euromillions numbers, get a unicorn for Christmas, and have been born a few decades ago to get on the housing ladder earlier. 🤷‍♀️

Really great advice above. I wouldn't be thinking of future sales, I'd be thinking more along the lines of 'will I be happy living here for X years, and not paying rent'