Understanding Property Valuation: How the Value of Your Property Is Really Determined

What does property valuation actually mean?

The aim of a property valuation is to determine the market value (Verkehrswert) of a property, also referred to as the fair market value. What this is to be understood to mean is regulated precisely by law. Pursuant to Section 194 of the Federal Building Code (Baugesetzbuch, BauGB), the market value is determined by the price that, at the valuation date, would be achievable in the ordinary course of business according to the legal circumstances and actual characteristics, the general condition and the location of the property, and that without regard to unusual or personal circumstances.

The market value is therefore the sober price achievable on the market under normal conditions, not the wishful price and not the sentimental price. The principles by which this value is determined are set out in the Property Valuation Ordinance (Immobilienwertermittlungsverordnung, ImmoWertV), which has applied in its 2021 version since 1 January 2022. It is the nationwide uniform basis for a sound determination of value and the foundation of every well-founded valuation.

The three procedures under the ImmoWertV: comparative, income, asset value

The ImmoWertV recognises three standardised valuation procedures. Which one is applied depends above all on the type of property and on the available data. Frequently several procedures are also combined in order to safeguard the result.

• Comparative value method (Vergleichswertverfahren, Sections 24 to 26 ImmoWertV): The value is derived from the purchase prices of a sufficient number of comparable properties. It is the procedure closest to the market and is typically used for condominiums, detached houses and undeveloped plots of land, that is, wherever enough similar sales are available.
• Income value method (Ertragswertverfahren, Sections 27 to 34 ImmoWertV): Here it is the sustainably achievable income that counts. The value is derived from the customary rental income, reduced by the management costs. It is the benchmark for let properties and capital investments, such as apartment buildings, mixed-use or commercial properties.
• Asset value method (Sachwertverfahren, Sections 35 to 39 ImmoWertV): The value is made up of the land value and the value of the structural facilities, subsequently adjusted to the market level. It applies above all to owner-occupied houses when too few comparable cases are available or the income is not the central consideration.

Which procedure is suitable is not a matter of taste, but follows from the property and the market. It is precisely this classification that is the first step of every sound valuation.

Which factors really determine the value

Regardless of the procedure, the same characteristics always feed into the value, which the law summarises as legal circumstances and actual characteristics. At their core, these are the following factors:

• Location: by far the most important lever. The macro-location describes the city and region, with economic strength, labour market and demand. The micro-location refers to the street, the neighbourhood and the surroundings, that is, quiet, greenery, transport links and image. In Düsseldorf, two properties of the same size may be valued perceptibly differently solely on account of the micro-location.
• Condition and year of construction: the building fabric, the state of modernisation and the need for refurbishment have, via the remaining useful life, a direct effect on the value. A well-maintained, modernised property achieves a different price from a comparable one with a backlog of renovations.
• Living space and plot size: they are the basis of price formation. The plot area feeds in via the land value, while the living space shapes the comparative and income considerations.
• Energy standard: insulation, heating, windows and the energy performance certificate have become a genuine value driver, because buyers price in energy costs and refurbishment expenditure.
• Fittings: the quality of bathrooms, floors, windows and building services influences both the construction costs in the asset value method and the achievable prices and rents.

Taken together, the market value results from these factors. None stands alone; they act in combination.

Official data as the foundation: the standard land value, BORIS NRW and the expert committees

A robust valuation rests not on estimation, but on real data. In North Rhine-Westphalia these are supplied by the expert committees for property values (Gutachterausschüsse für Grundstückswerte). Pursuant to Section 193 BauGB they maintain a collection of purchase prices in which all notarised purchase contracts are recorded, and from this they derive market data. From this data basis come the comparative prices without which a comparative value method would not be possible.

From the same source arises the standard land value (Bodenrichtwert) pursuant to Section 196 BauGB, that is, the average locational value of the land per square metre for a particular zone. In NRW it can be consulted free of charge via the official portal BORIS NRW. The standard land value is a valuable starting point, above all for the land value in the asset value and income value methods. What remains important is this: it represents only the land, not the building upon it. For a plausibility check it is excellently suited; it does not, however, replace a complete valuation.

Online valuation, personal valuation, market value report

The term property valuation encompasses three very different things. It is worth keeping them cleanly apart.

The online valuation provides, on the basis of a few key figures and statistical models, an estimated value within seconds. It is a rough orientation, no more. The actual condition, the precise micro-location, the fittings or hidden defects cannot be captured by an algorithm. As an initial reference point that is fine; as a basis for a price expectation it is too imprecise.

The personal valuation rests on an on-site inspection and on knowledge of the local market. It takes into account the condition, the fittings, the micro-location and current demand, and draws on real comparative data. For most owners who wish to classify their value realistically or to prepare a sale, it is the appropriate, well-founded basis.

The market value report (Verkehrswertgutachten) is the most formal level. It is prepared by qualified experts strictly in accordance with Section 194 BauGB and the ImmoWertV, documents the method, the data sources and the derivation, and contains appendices such as a site plan, floor plans and photographs. It is more elaborate and subject to a fee, but in return it is robust before courts and authorities.

When a market value report is advisable or necessary

For an ordinary preparation for sale, no formal report is needed. There are, however, situations in which a robust market value report is advisable or even required, because authorities and courts accept only a qualified document:

• Inheritance and gift: the tax office initially applies a standardised real property value. If the actual market value is lower, a lower common value may be demonstrated pursuant to Section 198 of the Valuation Act (Bewertungsgesetz, BewG) by means of a market value report, which can perceptibly reduce the tax burden.
• Divorce and equalisation of accrued gains: for the division of assets a comprehensible, neutral value is required. A quick estimate is, as a rule, not sufficient here.
• Court proceedings: in the case of a partition auction or a dispute among co-heirs, the court usually appoints an expert who prepares a report pursuant to Section 194 BauGB.
• Tax office in general: whenever a value has to be substantiated before an authority, a formal report provides the necessary reliability.

In all these cases it is a matter of evidential force. For the question of what your property can achieve on the market, by contrast, a well-founded personal valuation is usually the correct and quicker route.

How you, as an owner, are best advised to proceed

An initial orientation of your own can be achieved in a few steps: retrieve the standard land value for your location via BORIS NRW, consult the property market report of your expert committee, and when making comparisons always pay attention to purchase prices actually achieved, not asking prices from advertisements. An online estimate can roughly round this off, but it should be understood for what it is, namely an approximate ballpark figure.

What your property is worth today in concrete terms can be answered most reliably by a well-founded, data-supported initial valuation. You will receive this from us free of charge and without obligation. As an arm of Wolfgang Richter GmbH, we have been at home in the Düsseldorf and North Rhine-Westphalian market for more than six decades and know the local particularities from daily practice. Over the years a grown network with more than 20,000 contacts has emerged, which helps us to classify market movements early and realistically. On request, a property can also be approached confidentially away from the large portals, discreetly and with focus. We explain every step to you calmly and stand reliably at your side.