Anyone looking for a property for themselves is often primarily guided by emotions. If the location, the architecture and the surroundings are right, it is easy to fall in love with a property. This is a good thing, because ultimately the future owners should feel comfortable in their own four walls. But when it comes to actually buying the property, the price must be right. Buyers and sellers of a property must be able to agree on a price and for this they need an objective and well supported estimate of the value of a property.

Seller and buyer must be able to agree on this. An objective and well-supported market value estimate can help here.

Beat Hürlimann, CEO of Wüst und Wüst, uses the factors ‘land value’ and ‘utilisation potential’ to show what needs to be taken into account when determining value.

The land value as a primary factor

When the selling price of a property has to be determined, the value of the scarce commodity of land plays an extremely important role. If the property is unbuilt and completely developed, the land value alone is usually taken into account in determining the price. The land value is essentially determined by the macro-location (canton, municipality) and the micro-location (location in the quarter, view, privacy) as well as the utilisation rate and the current market situation.

In principle, the land price for undeveloped land is higher because the buyer has complete freedom of planning for the use of the land and does not have to plan for the conversion, renovation or demolition of an existing building, and rarely has to avoid compromises that could reduce the purchase price. In the case of a built property, the current market value of the building must be added to the land value.

Since, with few exceptions, the construction costs are approximately the same everywhere, the land is the factor that varies greatly and thus determines the price. As a rule of thumb, it amounts to about one third of the total costs; in prime locations or with a higher occupancy rate, forty percent or more is quite possible.

The development of the land price can be influenced in the short term by changes such as improved transport connections or a change in tax rates in one’s own or other (neighbouring) cantons. Last but not least, new zoning (increase in building land reserves) and changes in municipal building regulations can also lead to adjustments in land prices.

The potential for use as added value

When determining the value of a property, in addition to the evaluation of location factors and the inclusion of key data such as the size of the plot of land, the existing living space, the cubic volume, etc., the potential for use is also decisive. Particularly in the case of older, developed properties, it is not easy to identify the existing, dormant potential and to point it out to potential buyers.

Potential is not (only) the available space for expansion, but the potential for use of the property as a whole. With the help of a creative architect, who can point out possibilities of how the property can be better used with a conversion or extension, possibly also with a new building, the utilisation potential can be made visible. A perhaps “ugly duckling” suddenly becomes a “pearl”. The chances of a sale are significantly increased and the potential value of a property becomes visible.

Of course, this value must be corrected with a backward calculation, in which the total investment costs required are deducted to determine the current value of the property. This is then often much higher than the value calculated with a conventional valuation, which only takes “numerical values” into account.

Experience has shown that the cost (study by the architect) for a target group-oriented analysis of the utility value of a property can be (over)compensated for by a higher sales price.